Delta-Virgin Atlantic forming joint venture to boost U.K. traffic

Virgin Group founder and Chairman Sir Richard Branson speaks via a videoconference link Tuesday as Delta Air Lines announced it will buy nearly half of Virgin Atlantic Airways to give it a bigger stake in the New York-to-London air-travel market.

Virgin Group founder and Chairman Sir Richard Branson speaks via a videoconference link Tuesday as Delta Air Lines announced it will buy nearly half of Virgin Atlantic Airways to give it a bigger stake in the New York-to-London air-travel market.

Wednesday, December 12, 2012

— Delta Air Lines said it will buy almost half of Virgin Atlantic for $360 million as it tries to catch up to rivals in the lucrative New York-to-London travel market.

Delta plans to form a joint venture with Virgin Atlantic so the two airlines can sell seats on each other’s flights, share costs and profits and set flight schedules in ways that help both airlines. American Airlines has a similar deal with British Airways.

Because Delta would be setting fares and schedules in coordination with an airline it used to compete with, it will need antitrust approval from U.S. and European regulators in order to form a joint venture. However, Delta said the share purchase will happen with or without antitrust approval.

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

While the deal won’t add flights between the U.S. and Britain, travelers using the airlines will see a more seamless trip. Fliers would be able to buy one plane ticket from, say, Lansing, Mich., on Delta and connect in New York on a Virgin Atlantic flight to London. Travelers from Europe will also have a smoother transition onto Delta flights to locations in- side the United States. Delta said their frequent flier programs would be linked, too.

Combined, Delta and Virgin Atlantic offer 31 flights a day in each direction between North America and the U.K., including nine each way between London’s Heathrow Airport and John F. Kennedy International Airport in New York and Newark Liberty International Airport in New Jersey.

By itself, Delta has only three flights a day straight from New York to Heathrow. Competitors American Airlines and British Airways have 14 between them. And that’s a problem: New York-to-London and back is one of the world’s prime business travel routes. Delta has loads of travelers coming into its New York hubs at JFK and LaGuardia. But without more flights to transport those travelers on to London, Delta is at a serious disadvantage.

Landing rights at Heathrow are limited, so Delta can’t just add more flights there.

The deal positions Atlanta-based Delta and Virgin Atlantic to grab a bigger slice of flights across the North Atlantic, the world’s richest lode of premium passengers. British Airways and AMR Corp.’s American Airlines, the leaders of the Oneworld alliance, now control more than half of that service.

“It gives Delta the bulk between New York and Heathrow to compete effectively for the high-yielding business traveler,” said Jeff Straebler, an analyst at John Hancock Financial Services in Boston. “Delta is filling a gap in its route network that will pay off for years to come.”

Richard Branson will still own more than half of Virgin Atlantic, which will continue to fly as a separate airline under its own name. In 2000, Branson sold a stake to Singapore Airlines for about $966 million, the equivalent of about $960 million today. That’s the share that Delta is buying.

Virgin Atlantic has been struggling. It reported a pretax operating loss of $129 million in its most recent fiscal year, even as the number of passengers it carried rose 2 percent. It indicated in 2010 that it might be interested in some kind of tieup with another airline. British media reports at that time said Delta was interested.

Branson’s involvement gives Virgin Atlantic strong name recognition, but it is much smaller than Delta. Virgin Atlantic has 38 planes, compared to 725 for Delta. Delta carries some 160 million passengers per year, almost 30 times more than Virgin Atlantic.

While the Virgin Atlantic brand will remain and founder Branson will retain control, the deal marks the end of a go-italone strategy for the airline the 62-year-old U.K. billionaire established almost three decades ago.

By linking itself with Virgin Atlantic, Delta is targeting North Atlantic flights that generate roughly one-quarter of all global revenue from first- and business-class fares — more than twice as much as secondplace trans-Pacific routes, according to the International Air Transport Association.

Newark service will let Delta and Virgin Atlantic reach business travelers who live closer to an airport dominated by United Continental Holdings Inc., the world’s largest airline.

“Those are important, wellto-do areas in northern and central New Jersey where Delta has almost zero presence,” said Henry Harteveldt, a travel analyst at Hudson Crossing in San Francisco. “North America is Virgin Atlantic’s most important long-haul market, and culturally the two airlines will mesh better.”

There is “quite a lot of potential” for Virgin Atlantic and Delta to move aircraft around or add service to new U.S. cities in the future, Virgin Atlantic Chief Executive Officer Steve Ridgway said Tuesday in an interview on Bloomberg Television. He didn’t identify any of those markets.

The Virgin Atlantic accord marks the third stake in a foreign carrier Delta has made in the past two years.

Delta agreed to buy 3 percent of Brazil’s Gol Linhas Aereas Inteligentes SA for $100 million in 2011 and this year completed a $65 million investment in Grupo Aeromexico SAB.

Information for this report was contributed by Joshua Freed of The Associated Press and by Mary Jane Credeur, Kari Lundgren,, Erik Schatzker, Stephanie Ruhle and Adrienne Toscano of Bloomberg News.

Business, Pages 25 on 12/12/2012