Delta Air Lines is cementing its ties with some of its foreign partners, with a round of investments that will create what some pundits referred to as a “virtual super-airline” spanning the globe.
In a series of financial transactions, Delta and fellow Skyteam member China Eastern each will buy 10% of Air France/KLM. For its part, Air France/KLM will buy 31% of Virgin Atlantic Airways from founder Richard Branson, on top of the 49% stake Delta already owns. Virgin and Delta entered into a separate venture in 2013, which allows them to coordinate on transatlantic service.
The latest deals, worth a total of about $1.2 billion, will turbocharge the carriers’ existing SkyTeam Alliance and allow tighter coordination among the lines on scheduling, loyalty plans and other marketing programs. Among other things, Air France/KLM could code-share with Virgin and passengers would benefit from amenities like shared lounges and mileage tie-ins.
Virgin is the only airline in the group that isn’t a member of SkyTeam, and in the past Branson has expressed disdain for such pacts. With Branson’s stake in his airline reduced to around 20%, however, Virgin’s position could change.
Air France-KLM CEO Jean-Marc Janaillac, called the deal “unprecedented in scale,” saying it will “reinforce our transatlantic alliance, making us the number one alliance between Europe and the United States in terms of traffic.” On the other side of the world, the deal with China Eastern will “consolidate our position in a high-growth market.”
The deals likely will require regulatory approval and anti-trust immunity to allow coordination on pricing and other business matters, and probably won’t be finalized for another year, the carriers said. But it comes at a critical time, when the established legacy lines like Delta and Air France/KLM are increasingly fighting competition from low-cost upstarts across the Atlantic. They’ve also claimed they’re losing market share to rapidly growing Middle East airlines like Emirates.
Separately, Delta has snapped up equity stakes in a number of other foreign airlines to forge stronger relationships; it bought 49% of AeroMexico as well as 9.5% of the Brazilian carrier Gol. And two years ago, it acquired 3.5% of China Eastern.