17 October 2007 - Delta and Air France today signed a transatlantic joint venture agreement designed to provide a higher level of integration and enhanced competitive positioning for one of the world's primary commercial aviation partnerships. The two airlines, along with SkyTeam partners
Alitalia, CSA Czech Airlines, KLM Royal Dutch Airlines and Northwest Airlines, last week also asked for speedier regulatory review of their pending antitrust immunity request.
The SkyTeam airlines told the U.S. Department of Transportation that the Air France-Delta JV, and a longstanding pact between Air France-owned KLM and Delta partner Northwest Airlines, "will form the building blocks" of a four-way joint venture.
With the liberalized aviation agreement between the
United States and Europe scheduled to start next spring, the Air France-Delta bilateral JV ups the ante in the highly competitive and lucrative North Atlantic market. Set to take effect in April 2008, the cost-, revenue- and codesharing deal initially would include nonstop transatlantic services between each carrier's respective hubs, as well as new services each expects to provide in and out of London Heathrow Airport. Delta plans to use Air France slots at Heathrow for routes to Atlanta and New York JFK, while Air France operates new flights between Heathrow and Los Angeles.
By 2010, the JV would encompass all transatlantic operations by both airlines--as well as flights connecting to and from those operations--and pool "more than $8 billion" in annual revenues.
From a corporate sales perspective, the arrangement "means that we will now have the opportunity--because we have shared costs and shared revenues--to simplify and enhance the travel management process" for multinational corporate and travel agency clients, according to Pam Elledge, Delta senior vice president for global sales and distribution.
Elledge added that there would be "no immediate change to any of the corporate, agency or industry contracts."
Delta and Air France, she said, will continue working toward a global selling platform for corporate clients while coordinating sales goals and strategies.
Unlike KLM and Northwest, which in 1993 were the first to create an antitrust-immunized transatlantic joint venture, Air France and Delta will not eliminate their sales presence in each other's home markets. "The difference with the KLM-Northwest model is that they have had, from the beginning, a mutual representation agreement," said Jean-Claude Cros, Air France vice president and general manager for the United States. "We are a joint venture, but there is no mutual representation agreement."
The airlines said a steering committee would oversee integration of "network, revenue management, sales and distribution, products and services, frequent flyer program, operations, IT, finance and cargo."
"Working cooperatively with a common bottom line gives us a combined incentive to grow a much larger traffic pool, without regard to which carrier actually carries [the passenger] or plates the revenue," Delta CEO Richard Anderson said today during the JV signing ceremony in Paris.
Though both airlines stressed that they would retain their brands and that the arrangement does not make one company a subsidiary of the other, Calyon Securities analyst Ray Neidl in a research note wrote that the deal is "almost a merger."
Meanwhile, SkyTeam awaits movement at DOT on its expanded immunity request, first submitted in June. In last week's filing, a response to DOT's request for more information, the allies said "partners will share the economic benefit of slot usage" at London Heathrow. The applicants also requested the elimination of restrictions on the Atlanta-Paris and Cincinnati-Paris citypairs, enacted to address the combined Air France/Delta dominance in those markets. These carve-outs "undermine the goal of metal neutrality that is key to maximizing anticipated consumer benefits," they argued. The airlines also distanced their transatlantic immunity request from SkyTeam partner Korean Airlines, which has an immunized transpacific alliance with Air France, Alitalia, CSA Czech and Delta, but neither KLM nor Northwest. Much of the information requested by DOT was provided confidentially.
Airline antitrust immunity has always been a complex issue, entangled by domestic and international competition rules and geopolitical gamesmanship. But with the new U.S.-E.U. Open Skies deal finalized, each of the three global airline blocs (SkyTeam, Oneworld and Star Alliance) has recently received or requested expanded antitrust immunity for transatlantic operations.
Star Alliance last month received DOT approval to include bmi in its Star antitrust-immunized alliance, effective 30 March 2008. Covering transatlantic routes, the immunized partnership also includes Air Canada, Austrian Airlines, Lufthansa, LOT Polish, SAS, Swiss, TAP and United Airlines.
Oneworld remains hampered by circumstance: European anchor British Airways hubs at Heathrow, the airport central to years of competitive controversy. As a result, BA and Oneworld co-founder American Airlines have been unable to secure antitrust immunity.
It's been that way for years. U.S. antitrust regulators in 1998 provided comments to a congressional committee on a proposed AA-BA codeshare alliance, saying an Open Skies deal between the two governments--while an "essential" pre-requisite--would "not be enough to realize that possibility for new entry, due to severe constraints on new access at London's Heathrow Airport."
Despite the slot maneuvering underway at Heathrow ahead of transatlantic liberalization, AA and BA are not currently attempting another antitrust immunity request. American and Oneworld partners Iberia, Finnair, Malev Hungarian Airlines and Royal Jordanian Airlines (but not BA) await action by DOT on their pending immunity application, which covers code sharing, revenue sharing, pricing, distribution systems, route planning and other areas.
From the airlines' perspective, antitrust immunity can offer a huge opportunity to reduce costs through alliance synergies and optimized operations, drive incremental revenue through customer loyalty, and ostensibly provide lower fares and more flight options. Competitors generally urge authorities not to grant immunity, saying it would stifle competition. DOT has rejected certain proposals, but since approving immunity in 1993 for Northwest and KLM has also given the nod to a dozen more requests.
From the perspective of multinational companies, immunized airline alliances can offer joint pricing, account management, scheduling, frequent flyer programs and other customer benefits. Their level of integration seems to match their progress in coordinated global corporate sales: "Star Alliance is leading the drive for corporate business with approximately 80 deals signed, compared to about 10 at SkyTeam and fewer than five at Oneworld," according to a recent report from Carlson Wagonlit Travel.
