Air France KLM acquires a 31% stake in Virgin Atlantic

London Air Travel » Virgin Atlantic » Air France KLM acquires a 31% stake in Virgin Atlantic

Air France KLM, Delta and Virgin Atlantic have today announced a significant series of transactions which will see Sir Richard Branson’s Virgin Group cede control of Virgin Atlantic.

Virgin Atlantic is currently 49% owned by Delta Air Lines and 51% owned by Virgin Group.

Air France KLM is to acquire a 31% stake in Virgin Atlantic for £220m, reducing Virgin Group’s ownership of the airline to 20%. Sir Richard Branson is to retain the position of President.

Separately, Delta Air Lines and China Eastern will each acquire a 10% stake in Air France KLM for a combined sum of €751m.

Virgin Atlantic will retain its name.  In order to preserve all of its flying rights, it remain a majority UK owned airline with an Air Operating Certificate in the UK.  (Quite how this will be achieved has not been disclosed.)

In addition, Virgin, Delta and Air France KLM are to operate a combined transatlantic joint-venture between Europe and the United States. At present Delta has separate transatlantic joint-ventures with both Air France-France and Virgin Atlantic.

Operating a combined joint-venture will mean that Virgin will codeshare on Air France KLM’s transatlantic routes from Paris and Amsterdam and allow reciprocal earning of frequent flyer miles and recognition of frequent flyer benefits. Virgin and Air France KLM will also benefit from access to each other’s corporate customer bases.

There are a few unknowns:

Nothing has been said about whether Virgin Atlantic will join the SkyTeam alliance of which Delta and Air France KLM are members.

When Delta acquired a 49% share in Virgin Atlantic there was a significant restructuring of its route network with routes to Tokyo, Cape Town, Mumbai, and Vancouver suspended.  Virgin has also suspended Accra, Nairobi and Sydney. This has left only Dubai, Shanghai, Johannesburg, Lagos, and Delhi as non-US long-haul routes from London. It’s not clear whether these will remain or be removed in favour of codeshares from the respective hubs of KLM and Air France.

The press releases refer to co-location at key hubs to improve connectivity and achieve cost savings.  One of these is London Heathrow.  Currently Delta and Virgin Atlantic fly from Terminal 3.  Air France and KLM operate from Terminal 4.  Consolidating all operations in one terminal would make sense, but would involve a lot of upheaval.

It’s also not clear whether Virgin’s frequent flyer programme “Flying Club” will remain in the long term or be merged with Air France KLM’s “Flying Blue”.  Today’s release refers to an enchanced frequent flyer partnership.  However, a combined flying programme could be a powerful rival to the British Airways Executive Club and Avios currency, particularly given that KLM has a substantial presence at UK regional airports.

Whilst today’s announcement has been heralded as positive news, it has to be noted that Virgin Atlantic is forecast to make a loss this year. Furthermore, with Virgin suspending London Heathrow – Chicago it was arguably struggling to compete against its transatlantic rivals.

As for Sir Richard Branson, this does effectively mean the end of his ambitions in the aviation industry.  Whilst the Virgin name will remain, he will no longer control the airline.  The Virgin Group has disposed of many businesses over the years, but it had always maintained that it would keep control of Virgin Atlantic, this business most closely associated with his public persona.

Here are the news releases from Air France KLM,  Delta and Virgin Atlantic. Sir Richard Branson has also penned a letter (with the inevitable barbs at BA and International Airlines Group CEO Willie Walsh).