In August the US Department of Transportation tentatively approved this joint venture, and that has now been finalized, meaning that we should see this launch shortly, including reciprocal frequent flyer benefits.
Before we get into the exact details, let’s cover some of the basics.
What Is A Joint Venture?
A joint venture is the highest level of cooperation you can have between two airlines.
When airlines form a joint venture they coordinate pricing and schedules in a given market, and have a revenue sharing agreement. Exactly how that revenue sharing agreement works depends on the specific situation, but the idea is that two airlines are essentially acting as one under a joint venture.
Note that airlines form joint ventures between specific regions, which is why this is different than an outright merger.
From the perspective of a consumer, a joint venture is both good and bad:
- The good news is that typically it gives you the most flight options in terms of schedules, since the airlines are operating as one; airlines also often try to make the experience as consistent across brands as possible
- The downside is that it’s like a competitor being eliminated in the market, so it could lead to higher fares as it reduces competition
Delta’s Current Transatlantic Joint Ventures
Delta is in an interesting situation because up until now they’ve had two separate transatlantic joint ventures, which basically cover the same regions:
- Delta and Virgin Atlantic have a transatlantic joint venture
- Delta is part of the SkyTeam transatlantic joint venture, which also includes Air France-KLM and Alitalia
Those are two separate joint ventures, so that means that while Delta works closely with all of those airlines, there’s no cooperation as of now between Virgin Atlantic and the other transatlantic SkyTeam airlines.
What’s also interesting is the equity investments involved here:
- Delta owns a 49% stake in Virgin Atlantic, and a couple of years ago it was announced that Air France-KLM would acquire a 31% stake in Virgin Atlantic
- Delta owns an 8.8% stake in Air France-KLM
In this case Delta doesn’t just have a joint venture, but they also have an equity stake.
The New Transatlantic Mega-Joint Venture
A while back, a request was made to form a new transatlantic joint venture. Essentially the request was for a single transatlantic joint venture between Delta, Air France, KLM, and Virgin Atlantic. That means that rather than two separate joint ventures, Delta would have a single joint transatlantic venture.
In August the US Department of Transportation tentatively approved the new joint venture, and on Friday the DOT finalized approval of the new joint venture, meaning that they’ve now cleared all regulatory hurdles.
This joint venture being approved also means that Alitalia is being cut out of the transatlantic joint venture. It’s my understanding that the transatlantic market is one of the few in which Alitalia makes money, so this will be a huge loss for them, as they won’t be part of this lucrative joint venture.
What Does This Mean For Cooperation Between Airlines?
Aside from pricing, there are two big implications to this new joint venture for passengers.
First of all, when booking paid tickets you should now be able to fly Virgin Atlantic in one direction and Air France in another direction, for example. That’s potentially kind of cool, especially when there are discounted business class fares and you want to mix things up.
Beyond that, we should expect cooperation between Air France-KLM Flying Blue and Virgin Atlantic Flying Club. While Delta already partners with Air France-KLM and Virgin Atlantic, this is the first time we’ll see cooperation between Flying Blue and Flying Club.
So you should be able to earn and redeem Virgin Atlantic miles on Air France-KLM soon, and vice versa. We don’t know an exact timeline for that yet, but I would guess it will happen within weeks.
Bottom Line
Usually I’m opposed to joint ventures on principle because they’re the equivalent of eliminating a competitor. In this case though two joint ventures are being consolidated into one.
There will definitely be some positive aspects to this, like being able to earn and redeem Virgin Atlantic miles on Air France-KLM and vice versa. But I’m also worried about the impact this will have on transatlantic revenue pricing.
What do you make of the new SkyTeam & Virgin Atlantic transatlantic joint venture?
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