On Monday, Delta Air Lines (NYSE: DAL) announced that it is finally joining forces with Virgin Atlantic to compete in the U.S.-U.K. air travel market. Both companies have been known for their above-average service, making them natural partners. However, neither has had enough scale to compete effectively with British Airways and American Airlines, which operate a joint venture that dominates air travel between the U.S. and the U.K.
However, this week, Delta and Virgin Atlantic received final regulatory approval for a joint venture of their own. This means that they can now coordinate schedules and fares in order to be more efficient (and more profitable).
This is great news for Delta investors and customers: especially New York-area business customers. The joint venture will greatly bolster Delta's competitiveness vis-a-vis AMR (NASDAQOTH: AAMRQ) and United Continental (NYSE: UAL).
More options for travelers
Last December, Delta announced that it would spend $360 million to buy a 49% stake in Virgin Atlantic from Singapore Airlines. The investment was designed to be the cornerstone of a strategic alliance between the two carriers. By joining forces, Virgin Atlantic would provide more access to the U.S. for its customers while Delta would bolster its presence in the U.K.
Delta has made a major effort in the last few years to improve its service in New York, in order to court lucrative corporate travelers. One of the biggest impediments it faced in its fight against United Airlines and American Airlines in New York has been its small presence at London Heathrow Airport.
New York to London
The JFK-Heathrow Airport route is the most important international route for U.S. carriers due to the high concentration of business travelers. Having a good flight schedule between the two is critical for any airline attempting to win corporate market share in New York.
Recently, Delta has been able to operate just three daily nonstops between JFK and Heathrow. By contrast, the British Airways-American Airlines joint venture flies 11 daily roundtrips on the route! (United flies five times a day from nearby Newark Airport to Heathrow.) Delta's investment in Virgin Atlantic and the new joint venture are designed to turn this weakness into a strength.
The centerpiece of the Delta-Virgin Atlantic joint venture is a coordinated schedule for flights between JFK Airport and Heathrow Airport. Beginning on March 30, the two carriers will offer seven daily roundtrips on that route, including six flights spread out across the evening peak for travel from New York to London.
These flights will be complemented by two daily roundtrips between Heathrow and Newark Airport (where United maintains its New York hub). In total, Delta and Virgin Atlantic will operate 32 daily roundtrips between the U.S. and the U.K. on peak days, of which 24 will go to Heathrow Airport. Until the joint venture is implemented, Delta and Virgin Atlantic will continue code-sharing on their existing flight schedules.
Delta has been itching to grow in New York, and has already started to win some corporate share away from United and American, which are both major competitors there. Delta's new joint venture with Virgin Atlantic will put another weapon in its arsenal, as it can now offer more flight options between New York and London. This will help Delta win more lucrative corporate accounts in New York, making Delta an even more formidable rival for United and American.
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