Delta buys 49% stake in Virgin Atlantic
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.