The skies over the Atlantic Ocean are becoming increasingly crowded.
Every day, thousands of airliners crisscross the air corridors over the Atlantic, ferrying tourists and business men between megacities like New York and London.
For airlines and passengers alike, it’s some of the most glamorous flying in the business. Champagne and caviar at 40,000 as you make your way to Paris for dessert is old school luxury air travel at its finest.
While demand is plenty, so is the competition for that business.
And that competition is only getting tougher and more diverse.
Currently, the American Airlines-British Airways-Iberia joint venture is arguably the most profitable airline partnership in the world. The joint venture is blessed with major hubs at New York JFK, Chicago O’Hare, Dallas-Fort Worth, Madrid, and London Heathrow.
At British Airways’ London Heathrow fortress hub, the AA-BA-Iberia joint venture’s dominance is unquestioned.
On Thursday, Delta, Air France-KLM, Virgin Atlantic, and China Eastern announced a new joint venture that will see more than $US1 billion change hands and create a mega-carrier spanning three continents.
It’s a move that is expected to put Delta and its partners in an improved position to take on American Airlines and its joint venture partners at International Airlines Group, the parent company of British Airways, Iberia, among others.
“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,” Delta CEO Ed Bastian said in a statement following the announcement of the deal.
For Delta, who only commenced trans-Atlantic flights in 1978 following the deregulation of the US airline industry, the deal is certainly a major step forward. In many respects, it’s the biggest development in the Atlanta-based carrier’s global ambitions since early the 1990s — when it acquired Pan American World Airways’ international network for $US260 million.
As a result of the deal, the group has amassed what is the most impressive set of international hubs in the trans-Atlantic market. They include London Heathrow, Paris Charles De Gaulle, Amsterdam Schiphol, New York JFK, and Hartsfield-Jackson Atlanta.
For all the airlines involved, working with one another will not be anything new. All, apart from Virgin Atlantic, are members of the Skyteam airline alliance. Prior to its respective mergers with Delta and Air France, Northwest Airlines and KLM’s joint venture goes back to 1997.
In its current guise, Delta, Air France, and KLM have been joint venture partners since 2009. While Delta and Virgin Atlantic entered into a joint venture in 2012 after Delta purchased a 49% stake in Sir Richard Branson’s flagship airline.
According to Airways senior business analyst Vinay Bhaskara, the new JV makes sense for everyone involved.
For Delta, this week’s announcement unites its international partners through equity ownership. In addition, its $US440 million investment in Air France-KLM will be a financial boost for Franco-Dutch airline.
In turn, Air France-KLM’s $US287 million acquisition of Branson’s 31% stake in Virgin Atlantic creates a relationship that could be fruitful with Brexit looming. This gives VA a lifeline into Europe while AF/KLM earns precious access to London Heathrow.
China Eastern’s $US440 million 10% stake in Air France-KLM will help satiate its desire to own equity in major western businesses while further injecting capital into the national airlines of France and the Netherlands.
This creates what Bhaskara calls a metal-mutual joint venture that allows for greater choice and levels of route connectivity in the US and Europe.
With that said one issue remains. The true success and failure of the mega-joint venture will depend on how much integration the airlines involved will allow. The greater the integration of fleets, services, product, and even management, the greater the airlines will be able to reap the benefits.
With the newly minted partnership in place, what happens in the battle for supremacy over the Atlantic remains to be seen. Regardless, it should be exciting.
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