Delta currently has a joint venture with Virgin Atlantic and a separate joint venture with Air France-KLM (and Alitalia). Today, the carriers announced the two JVs would merge into one. China Eastern and Delta also get a seat at the Air France-KLM table.
Here’s the news–
- Air France-KLM will acquire Virgin Group’s 31% stake in Virgin Atlantic for £220 million
- Virgin Atlantic will join Air France-KLM/Delta joint venture
- Delta and China Eastern will each acquire a 10% stake in Air France-KLM within the framework of reserved capital increases totaling €751 million
- DL and MU will each receive a seat on the AF-KL Board
In its press release, Air France-KLM offered the following rationale for the JV venture:
- Offer customers an unrivaled proposition on transatlantic routes
- Drive the capacity growth of the partners
- Create an associate partner status enabling the inclusion of other players
- Extend a partnership over a 15-year period
- Generate significant annual synergies thanks to a new code share to/from London, sales coordination, the extended partnership and cost savings
Translation: London remains a lucrative market this allows us to better serve connecting London passengers.
Here’s Delta CEO Ed Bastian–
A dynamic global landscape means it’s more important than ever for Delta to deepen ties with our global partners to provide opportunities for mutual growth. Bringing together the strengths of Delta, Air France-KLM and Virgin Atlantic into a combined joint venture will create the trans-Atlantic partnership of choice for customers.
No mention that Alitalia is highly subsidized and Air France is partially state-owned.
Why Joint Ventures?
To review, joint ventures are “a commercial enterprise undertaken jointly by two or more parties that otherwise retain their distinct identities.” Two keys in JVs are anti-trust immunity and metal neutrality.
This partnership allows the Virgin Atlantic, Air France-KLM, and Delta to more effectively funnel traffic through each other’s hub. It may even lead to additional transatlantic routes from cities that would not otherwise be able to accommodate transatlantic travel.
For more on JVs, see this helpful IATA article.
China Eastern Too
Meanwhile, China Eastern will buy a seat at the table of Air France-KLM.
Air France-KLM’s stated goals–
- Secure and reinforce Air France-KLM’s presence in the Chinese market thanks to a long-term partnership
- Give Air France-KLM a European leadership position on Shanghai, the main business market in China
- Improve the services for our customers
- Enable increased cooperation in terms of the network, pricing and operational synergies
The next hurdle will be regulatory approval. But with closer cooperation will likely come enhanced frequent flyer reciprocity and other consumer benefits. Today’s the first step. As Delta explores buying a 24% stake in JET Airways, we may see JET thrown into the mix as well. Mark this as developing.