Delta buys 49 percent stake in Virgin Atlantic
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Delta Air Lines plans to buy almost half of Virgin Atlantic for $360 million, as it tries to capture a bigger share of the lucrative New York-to-London travel market.
The dominant airline in Minnesota expects to form a joint venture with Virgin Atlantic by the end of next year, allowing the two carriers to sell seats on each other's flights, share costs and profits, and coordinate flight schedules.
Delta CEO Richard Anderson said the deal would give his airline a much greater presence in London. Delta now has three daily flights from New York to Heathrow. Virgin Atlantic has six.
"If you look at traffic flows in the world, there's no more important market than the U.S. to London Heathrow market," Anderson said.
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Eight of the world's busiest air traffic routes involve Heathrow.
Delta has one daily flight between the Twin Cities and Heathrow, and that's not expected to change.
"It's going to be good for the airline. For the Twin Cities or Atlanta, it's not going to make a big difference," said Michael Boyd, an aviation industry expert. "But for the carrier, it's a good move. What they get is about 300 operational slots at London Heathrow. Those are valuable. They also get the ability to code-share with Virgin Atlantic, which gives them effectively a hub at London."
The deal won't add flights between the U.S. and Britain. But travel will be more seamless. Travelers would be able to buy one plane ticket from, say, Lansing, Mich. on Delta and connect in New York to a Virgin Atlantic flight to London. Travelers from Europe will also have a smoother transition onto Delta flights to locations inside the U.S. Delta said their frequent flier programs would be linked, too.
Combined, Delta and Virgin Atlantic have 31 flights a day in each direction between North America and the U.K., including nine each way between Heathrow and John F. Kennedy International Airport in New York and Newark Liberty International Airport in New Jersey.
Landing rights at London's Heathrow Airport are limited, so Delta can't just add more flights there.
Buckingham Research analyst Daniel McKenzie wrote that Delta needed to fix its shortfall of London flights in order to win more business travelers. He estimated that the deal would bring Delta hundreds of millions of dollars in added revenue starting in 2014. Some of that business will probably come at American's expense, since it also has a hub at JFK, McKenzie wrote.
Sir Richard Branson will still own more than half of Virgin Atlantic, which will continue to fly as a separate airline under its own name. Virgin Atlantic has 38 planes, compared to 725 for Delta. Delta carries some 160 million passengers per year, almost 30 times more than Virgin Atlantic.
Shares of Atlanta-based Delta Air Lines Inc. rose 60 cents, or 5.9 percent, to $10.74 in morning trading.
Because Delta would be setting fares and schedules in coordination with an airline it used to compete with, it said it will need antitrust approval from U.S. and European regulators in order to form a joint venture. Delta said the share purchase will happen with or without antitrust approval.
Delta is aiming to have the joint operation running by the end of 2013.
(The Associated Press contributed to this report.
