If you feel like you aged a little reading this title given the length, I’m sorry, but there really is quite a lot of news to get to here.
Over the past few years, we’ve seen strategic investments and joint ventures (a system in which airlines cooperate and share profits in certain markets) become one of (if not the) most significant ways airlines cooperate with one another. The global airline alliances are still alive and kicking, though severely lacking in new membership and increasingly marginalized by airlines cooperating with each other individually (such as the Lufthansa-Cathay Pacific, Air New Zealand-Cathay Pacific, and Etihad-Lufthansa partnerships). Etihad has even attempted to built a mini-alliance of its own via purchasing stakes in airlines (a good amount of which–ahem Air Berlin and Alitalia–haven’t turned out to well). So, the long and short of it is that airlines are increasingly cooperating with each other not through the framework of alliances but via stock purchases, joint ventures, and individual partnerships.
Further proving this trend, yesterday we got some big news regarding an expanding partnership between Delta, Air France-KLM, and Virgin Atlantic. The basic gist of what the airlines announced is as follows:
- Virgin Group will be selling 31% of its current 51% stake in Virgin Atlantic to Air France-KLM for ~289 million dollars, or 220 British pounds in the currency in which the transaction will occur. Delta already owns 49% of Virgin Atlantic, meaning Air France-KLM and Delta together own 80% of Virgin Atlantic, leaving Virgin Group with only 20% ownership
- Delta will be be buying a 10% stake in Air France at a cost of ~440 million dollars, or 375 million Euros.
In addition to the stock buying, Air France-KLM, Delta, and Virgin Atlantic announced a new transatlantic joint venture. At the moment, Delta has its own transatlantic joint venture with Virgin Atlantic and another one with its Skyteam alliance partners Air France-KLM and Alitalia. It was announced in combination with the stake purchases that these two joint ventures will be combined into a single one, having as partners Air France, KLM, Alitalia, Virgin Atlantic, and Delta. This joint venture will allow the airlines involved to align schedules and fares in the transatlantic market.
With the sale of a majority of its stake in Virgin Atlantic, Richard Branson’s Virgin Group now has little control over the airlines it founded: it completely ceded control of Virgin America to Alaska Airlines, it only owns 8% of Virgin Australia, and now has but a 20% share of their original airline venture, Virgin Atlantic, having sold off the rest to members of the Skyteam alliance.
Which begs the question, will Virgin Atlantic join Skyteam? It’s a possibility, though it doesn’t have a great chance of happening. Alliances offer virtually no advantage to an airline over joint ventures, with JV’s allowing airlines to actually share profits rather than simply cooperating via codesharing. Alliances aren’t a bad thing for airlines, but an airline like Virgin Atlantic, which has long refused to join a global alliance, doesn’t have much to gain from joining one that it can’t get (and then some) from targeted joint ventures with airlines of their choosing.
This certainly is important news for the airline industry. Virgin Group has finally lost control of its last airline, and Skyteam airlines now have a controlling influence over Virgin Atlantic. The new, simplified transatlantic joint venture will be, in all likelihood, be a good thing for the airlines involved (it remains to be seen whether it will be a good thing for consumers, seeing as with joint ventures come fare alignment, meaning there are often less price options). It seems unlikely at this point, despite the Air France/KLM/Delta domination of the airline, that Virgin Atlantic will join its new overlords in Skyteam, though there always is a slim possibility they could choose to do otherwise.