It looks like there’s a new transatlantic joint venture on the horizon, and this is going to be an interesting one…
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 transatlantic joint ventures up until now
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 here 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
So in this case Delta doesn’t just have a joint venture, but they also have an equity stake.
Creating a new transatlantic 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.
Well, today that joint venture has been tentatively approved. Now there’s a period of 14 business days where people can submit objections to this receiving final approval, though I expect it will be approved.
As you can see, this 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.
Other than losing Alitalia, I wouldn’t expect that this will mean much for Delta passengers, given the two joint ventures. The practical implications here are that:
- You should be able to redeem Air France-KLM miles on Virgin Atlantic, and vice versa
- When booking paid tickets, you should be able to fly Air France-KLM in one direction, and Virgin Atlantic in the other direction
- We could see more routes added, since a joint venture like this will have a lot more power
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?