The Delta Airlines Inc. (DAL) stock got positive reactions from the market to the U.S. Department of Transportation’s (DOT) approval of its tie up with Virgin Atlantic for better flight offerings between the U.S. and U.K. The approval, which was seen as the final hurdle to the trans-Atlantic joint venture (JV), came within a month of the tentative nod from DOT.
Looking back, in Dec 2012, Delta proposed to acquire a 49% stake in British carrier Virgin Atlantic from Singapore Airlines. The acquisition closed in Jun 2013 after the U.S. Department of Justice and European Commission cleared the deal.
Now, with the DOT nod, the JV will promote competition within the U.S. and U.K. markets and in turn benefit customers. The transport service regulator also noted that the JV will offer customers with more travel options between the cross Atlantic nations, in particular the New York and London market.
Currently, New York-London is the most lucrative business market in the world for passenger carriers that target business customers within the route. The route is currently being dominated by British Airways and American Airlines.
Delta and Virgin Atlantic will also work together to optimise their network opportunities and operate 32 daily flights between North America and U.K. The trans-Atlantic amalgamation will subsequently give Delta more control over the New York-London route and the second spot in this market with nine daily roundtrip flights.
Per the terms of the JV agreement between Delta and Virgin Atlantic, both carriers will share the expenses and revenues of the flights. Delta holds a commanding position in the U.S. market while Virgin Atlantic enjoys hefty slots at the popular Heathrow Airport.
The deal provides Virgin an opportunity to slash losses, while for Delta it’s an opening to strengthen its operations on some of the busiest routes on either side of the Atlantic. However, we believe the Delta-Virgin Atlantic alliance will benefit customers the most, who will gain from expanded and enhanced flight connectivity to key markets, better pricing, seating facilities and suitable booking options.
Delta operates with the likes of United Continental Holdings Inc. (UAL) and carries a Zacks Rank #3 (Hold). However, sector stocks Republic Airways Holdings Inc. (RJET) and Hawaiian Holdings Inc. (HA) look attractive with a Zacks Rank #2 (Buy).
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