Delta buys 49% stake in Vir­gin At­lantic

Delta

Austin American-Statesman - - BUSINESS - ByJoshua Freed

Delta Air Lines said it will buy al­most half of Vir­gin At­lantic for $360 mil­lion as it seeks a big­ger share of the lu­cra­tive New York-to-Lon­don travel mar­ket.

Delta plans to form a joint ven­ture with Vir­gin At­lantic, where the two air­lines would share money from the fiights op­er­ated un­der the part­ner­ship. In or­der to co­or­di­nate the sched­ules of the two air­lines, they’ll need an­titrust ap­proval from U.S. and Euro­pean reg­u­la­tors.

Land­ing rights at Lon­don’s Heathrow Air­port are lim­ited. So buy­ing part of Vir­gin At­lantic is a way for Delta to get a big­ger piece of the travel mar­ket be­tween Heathrow and the U.S. Cur­rently, Delta has fewer fiights from the New York area to Heathrow than ei­ther Amer­i­can or United, its main U.S. com­peti­tors.

If the plan is ap­proved, Delta and Vir­gin At­lantic would con­tinue to fly be­tween the U.S. and the U.K., as they do now. How­ever, they would mar­ket the flights to­gether and share the costs and prof­its.

Delta said it ex­pects to have 31 round-trip flights be­tween the U.K. and North Amer­ica on the busiest days, in­clud­ing nine round-trips a day be­tween Heathrow and John F. Kennedy In­ter­na­tional Air­port in New York and Ne­wark Lib­erty In­ter­na­tional in New Jersey.

Heathrow is dom­i­nated by Bri­tish Air­ways, which works closely with Amer­i­can Air­lines. They have a to­tal of 14 flights a day in each di­rec­tion be­tween JFK and Ne­wark and Heathrow.

Delta is seek­ing some­thing sim­i­lar with Vir­gin At­lantic.

“Our new part­ner­ship with Vir­gin At­lantic will strengthen both air­lines and pro­vide a more ef­fec­tive com­peti­tor be­tween North Amer­ica and the U.K., par­tic­u­larly on the New York-Lon­don route, which is the largest air­line route be­tween the U.S. and Europe,” Delta CEO Richard An­der­son said.

Delta is aim­ing to have the joint op­er­a­tion run­ning by the end of 2013.

Sir Richard Bran­son will still own more than half of Vir­gin At­lantic, which will con­tinue to fly as a sep­a­rate air­line un­der its own name. Vir­gin At­lantic has strug­gled with losses and said in 2010 that it might be in­ter­ested in some kind of tie-up with an­other air­line.

Delta has a part­ner­ship with Air France-KLM that serves many Euro­pean des­ti­na­tions, but it is not a strong con­tender in the Lon­don mar­ket. Delta has nine daily flights to Heathrow from New York, Bos­ton and At­lanta. But it has no di­rect flights from other top mar­kets, re­quir­ing pas­sen­gers to con­nect through its other hubs.

Heathrow is op­er­at­ing at full ca­pac­ity, and the Bri­tish government has re­jected ex­pan­sion plans to build a third run­way. As a re­sult, land­ing and take­off rights, known as slots, are lim­ited, mak­ing them rare and prized com­modi­ties.

With the deal, Delta is wad­ing into an old and of­ten feisty ri­valry op­pos­ing Vir­gin and Bri­tish Air­ways. Wil­lie Walsh, who runs the par­ent com­pany of Bri­tish Air­ways, the In­ter­na­tional Air­lines Group, said re­cently that Delta was really more in­ter­ested in Vir­gin’s slots at Heathrow than in pre­serv­ing the air­line or its brand.

“Delta be­lieves they are the No. 1 air­line in the world, so what they would want to do is ac­quire the slots … to en­able them to have a strong pres­ence at Heathrow,” Walsh told Bri­tain’s Tele­graph news­pa­per.

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