Joint Ventures in the airline industry are quite common, given the vast majority of benefits that the collaborations provide. These pacts allow airlines, engaged in partnerships, to better serve customers by jointly coordinating schedules, sales, marketing and customer services to offer wider travel options while simultaneously growing their own network.
Delta, Air France-KLM & Virgin Atlantic Deal
The U.S. Department of Transportation recently approved one such joint venture between Delta Air Lines DAL, Air France-KLM AFLYY and Virgin Atlantic that enables the carriers to expand their network between Europe and the United States.
The agreement will offer customers more travel options on the European flights, increased availability of seats and expansion of reciprocal frequent-flyer benefits. The airlines previously estimated the partnership to generate approximately $85 million in annual benefits to customers.
The combined capacity of the carriers between Europe and the United States is expected to rise 3.4% year over year in 2019, per Diio data. The companies plan for further growth next year, focusing on capacity expansion to the United States. Within United States, they aim at boosting capacity to one of Delta’s focus cities (Austin, Cincinnati, Nashville, Raleigh/Durham and San Jose).
Notably, the joint venture replaces Delta’s separate agreements with Air France-KLM and Virgin Atlantic. Previously, Italy’s flag carrier Alitalia was also part of the joint venture agreement between Delta and Air France-KLM.
Backstory
In July 2017, Delta, Air France-KLM and Virgin Atlantic first announced plans to integrate their separate joint venture agreements into a single alliance covering the transatlantic region. Back then, executives stated that Alitalia would be a part of the pact.
However, later in July 2018, Delta, Air France-KLM and Virgin Atlantic filed for an amended joint venture application that excluded Alitalia. The airlines cited the bankrupt carrier’s restructuring process as the reason behind the decision. The Italian government is trying to rescue this loss-making company by gathering some investors so that the struggling carrier can make a turnaround. In this regard, Delta agreed to acquire a 10% stake in the carrier upon its transformation.
The proposed joint venture agreement was opposed by JetBlue Airways JBLU on the grounds that the deal “would reduce and foreclose” competition on US-Europe routes. JetBlue carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Overcoming opposition, the deal received a tentative nod in August wherein Alitalia was not included. However, executives said in May that the stressed carrier can resume ties as an “associate member” upon completion of its restructuring process.
Other Notable Joint Ventures in the Airline Industry
American Airlines AAL received approval for its joint venture agreement with Australia’s leading carrier Qantas Airways in July. The deal strengthens the carriers’ partnership of more than 30 years with Qantas by fostering air travel between the United States and Australia as well as New Zealand.
United Airlines UAL has an Atlantic joint venture with Air Canada, Lufthansa, Austrian Airlines, Swiss and Brussels Airlines. Together, these carriers aim at improving efficiency and offering a variety of competitive products in the Atlantic region.
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