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Air France and Delta Air Lines of the US, two of the world’s biggest carriers, Wednesday unveiled details of a transatlantic joint venture expected to become one of the most powerful forces in North Atlantic aviation.
It will pose a tough competitive challenge to rival carriers in the transatlantic market, in particular British Airways at its global hub at London Heathrow, where Delta and Air France are planning a direct assault under the aviation freedoms created by the US/European Union “open skies†deal, which comes into force at the end of March.
Under the “open skies†treaty, Heathrow, the most important gateway in Europe for air traffic from North America, is being opened to free competition. This will end the previously protected status enjoyed on Heathrow/US routes by BA, Virgin Atlantic, American Airlines and United Airlines.
Delta executives on Wednesday warned rivals such as BA and Virgin that prices, in particular in business class, would inevitably fall as a result of the extra long-haul capacity at Heathrow.
“This is a game changer for BA. The world will never be the same,†said one Delta executive. “BA has been insulated from competition for 40 years, but it is not a guaranteed monopoly any more.â€
From 2010, the Air France/Delta venture will include routes generating about $8bn a year.
Eventually it is expected to be expanded to integrate the transatlantic operations of allied carriers KLM, already part of the Air France-KLM group, and Northwest Airlines of the US, adding annual revenues of more than $2.8bn.
All four are already members of the SkyTeam global airline alliance. The Air France/Delta joint venture will take in about 20 per cent of the two group’s global operations, including from the summer of 2010 all their transatlantic routes between North America, comprising the US, Canada and Mexico on the one side, and Europe and all of the Mediterranean on the other.
Richard Anderson, Delta chief executive, said the joint venture could add an estimated incremental pre-tax profit of between $125m and $200m a year from 2011.
As part of the first phase of the deal, from the end of March next year the joint venture will include flights operated by both carriers between Heathrow and the US, where neither currently operate in the long-haul market.
Air France is launching under its own brand a daily service between Heathrow and Los Angeles, while Delta will launch two daily services between Heathrow and New York JFK and one daily service between Heathrow and its biggest US hub in Atlanta.
Delta will lease the necessary three pairs of take-off and landing slots at Heathrow from Air France, which will free up the necessary slots by cutting its daily services between Heathrow and Paris Charles de Gaulle from 12 to probably seven.
The London/Paris air services will be reduced to take account of the growing market share that will be taken by the Eurostar rail operation, where journey times are being reduced further next month with the opening of the high-speed rail link from London St Pancras.
Air France is also expected to provide one pair of Heathrow slots to Continental Airlines of the US to support its parallel move into Heathrow, while KLM will provide three to four slot pairs to Northwest Airlines with which it already operates a long-standing North Atlantic joint venture.
The KLM/Northwest and Air France/Delta partnerships already have antitrust immunity to operate trans-atlantic joint ventures. But in another step the carriers have an application under examination by the US department of transportation (DoT) for the eventual four-way transatlantic joint venture.
Under the Air France/Delta deal the two carriers will share all incremental profits and revenues on a 50-50 basis. They will be able to market jointly and to collude on fixing capacity, prices and routes.
The limited first phase of the joint venture, from the end of March next year and running for two years, will include all non-stop flights operated by Air France and Delta between their respective hubs at Paris Charles de Gaulle, Paris Orly and Lyon, and Atlanta, New York JFK, Cincinnati and Salt Lake City, plus the Heathrow/US services.
The first phase will cover about $1.5bn of annual joint revenues.
As a result of the new transatlantic services, the initial joint venture will encompass 19 daily flights and more than 4,500 daily seats, a 45 per cent increase in capacity.
It will pose a tough competitive challenge to rival carriers in the transatlantic market, in particular British Airways at its global hub at London Heathrow, where Delta and Air France are planning a direct assault under the aviation freedoms created by the US/European Union “open skies†deal, which comes into force at the end of March.
Under the “open skies†treaty, Heathrow, the most important gateway in Europe for air traffic from North America, is being opened to free competition. This will end the previously protected status enjoyed on Heathrow/US routes by BA, Virgin Atlantic, American Airlines and United Airlines.
Delta executives on Wednesday warned rivals such as BA and Virgin that prices, in particular in business class, would inevitably fall as a result of the extra long-haul capacity at Heathrow.
“This is a game changer for BA. The world will never be the same,†said one Delta executive. “BA has been insulated from competition for 40 years, but it is not a guaranteed monopoly any more.â€
From 2010, the Air France/Delta venture will include routes generating about $8bn a year.
Eventually it is expected to be expanded to integrate the transatlantic operations of allied carriers KLM, already part of the Air France-KLM group, and Northwest Airlines of the US, adding annual revenues of more than $2.8bn.
All four are already members of the SkyTeam global airline alliance. The Air France/Delta joint venture will take in about 20 per cent of the two group’s global operations, including from the summer of 2010 all their transatlantic routes between North America, comprising the US, Canada and Mexico on the one side, and Europe and all of the Mediterranean on the other.
Richard Anderson, Delta chief executive, said the joint venture could add an estimated incremental pre-tax profit of between $125m and $200m a year from 2011.
As part of the first phase of the deal, from the end of March next year the joint venture will include flights operated by both carriers between Heathrow and the US, where neither currently operate in the long-haul market.
Air France is launching under its own brand a daily service between Heathrow and Los Angeles, while Delta will launch two daily services between Heathrow and New York JFK and one daily service between Heathrow and its biggest US hub in Atlanta.
Delta will lease the necessary three pairs of take-off and landing slots at Heathrow from Air France, which will free up the necessary slots by cutting its daily services between Heathrow and Paris Charles de Gaulle from 12 to probably seven.
The London/Paris air services will be reduced to take account of the growing market share that will be taken by the Eurostar rail operation, where journey times are being reduced further next month with the opening of the high-speed rail link from London St Pancras.
Air France is also expected to provide one pair of Heathrow slots to Continental Airlines of the US to support its parallel move into Heathrow, while KLM will provide three to four slot pairs to Northwest Airlines with which it already operates a long-standing North Atlantic joint venture.
The KLM/Northwest and Air France/Delta partnerships already have antitrust immunity to operate trans-atlantic joint ventures. But in another step the carriers have an application under examination by the US department of transportation (DoT) for the eventual four-way transatlantic joint venture.
Under the Air France/Delta deal the two carriers will share all incremental profits and revenues on a 50-50 basis. They will be able to market jointly and to collude on fixing capacity, prices and routes.
The limited first phase of the joint venture, from the end of March next year and running for two years, will include all non-stop flights operated by Air France and Delta between their respective hubs at Paris Charles de Gaulle, Paris Orly and Lyon, and Atlanta, New York JFK, Cincinnati and Salt Lake City, plus the Heathrow/US services.
The first phase will cover about $1.5bn of annual joint revenues.
As a result of the new transatlantic services, the initial joint venture will encompass 19 daily flights and more than 4,500 daily seats, a 45 per cent increase in capacity.
