motytrah

To baseline this topic, what was SQ getting from the existing deal?

pbarnette

Not much. I think the original intent was to gain greater access to LHR, but they weren't able to really do much with it and they have have all the access they need on their own now. They have been trying to get out of the deal for a long time.

Frankly, they are probably hoping that DL (and AF/KL) see value in VS as a way to cement a position at LHR. To this end, I would think that any investment by DL would be contingent upon VS both joining SkyTeam and joining the TATL JV. The deal doesn't make sense any other way.

adamj023

Nothing, they were trying for access they didn't get so they are selling their shares at a loss. Delta on the other hand is acquiring it and has a lot more to gain because the synergies are quite good.

Gives Delta much better access at LHR and quite frankly Delta and Virgin can combine resources to make a much better airline especially due to close ties between the USA and UK which is a more heavily traveled route than any other international destination.

Other airlines and even Virgin were upgrading their fleets while Delta's strategy was to acquire a stake in Virgin itself.

Delta has lots of advantages here even on the fuel side of the equation with Virgin because of the Trainer facility.

The deal is too good for Delta to pass up and for Singapore they get to reinvest in their airlines and free up capital which won't appreciate further for them.

Smart move all around.

Even though AA has their flagship 777-300ER going on the JFK to LHR route, which will indeed do well, they can't match the cost structure of Delta so Delta winds up doing financially much better off with Virgin.

Awhile back I was looking at Delta Skyteam and I too realized the weakness of the JFK to LHR route and wondered why Delta just had a 767-400ER and had no expansion plans considering growth of the route, but in fact they did, and they finally announced it which was the acquisition of Virgin shares.

I guess Delta couldn't get additional slots to LHR and didn't want to just purchase jets to upsize the fleet but rather saw they could do more with the entire fleet of Virgin at their side and I concur. It was a very smart move.

Will definitely increase marketshare and improve the business.

It just isn't clear yet if Delta will eliminate its own JFK to LHR service. Considering they will own a large stake in Virgin, seems like it makes sense to let Virgin run the business and for 767-400ER to be reallocated.

Virgin will definitely join SkyTeam with this deal.

LHR happens to be an excellent transfer destination to the rest of the global world so it helps Delta immensely by filling a major gap in its global route network and improves SkyTeam and could even open further route opportunities and increased business for Virgin's network.

The airlines management teams in the USA aren't asleep at the wheel and are really engaged in the travel demands of the 21st century.

Cloudship

I would think this would cause some reaction from *A. Particularly US Air, who doesn't seem to be making much progress with the AA merger. Without becoming part of the BA fold, they really need a strong London connection. Plus, Virgin's leisure oriented product ties in pretty well with US, whereas all DL gets out of it is more Premium Economy seats competing against their Business First product. I don't see AF and Branson getting along swimmingly well, so I doubt DL will have much ability to change VS's product much.

adamj023

USAir and AA will most likely merge. Virgin and Delta would likely reconfigure seating options I would think if a deal is completed.

AF is now run by KLM but so far only Delta made an offer although the media speculated KLM could make an offer to keep foreign ownership control.

sethb

US's reaction might be "Let's keep quiet and let this sale happen, then use it as ammunition for our merger."

adamj023

One needs to understand this deal from a revenue perspective. It is the biggest airline deal in the entire world right now.

USA to UK has huge traffic, the most of any other international destinations and between the two parties it shifted hands due to a win win proposition going forward for the future. Singapore probably lost close to 100 mil on this deal give or take but will likely get it back with the reinvestment in its other subsidiary airlines.

But Delta which pays a good price, gets access to Virgin Atlantic where it will flourish and likely be the most important and biggest weath creation engine in the entire Delta system since these are the most lucrative flights, far exceeding profit margins on domestic and other international routings.

I see the combined entity at LHR really doing well and these being the bread and butter of international connection flights. It opens up the door to so many possibilities.

Virgin's fleet will have really nice planes too as it upgrades and modernizes.

Consumers will have strong choices now.

http://en.wikipedia.org/wiki/Virgin_Atlantic_Airways

Virgin lost 80 mil on this, but with Delta and fleet modernization it should turn into very large profits.

Dieuwer

...unless the British Government decides to plug its budget deficit with increasingly higher APD taxes.

adamj023

Well I for one would like to see Virgin Atlantic in SkyTeam being on the USA side of the coin.

Cloudship

Remember this isn't a merger. DL would own 49%, less than the controlling share. Jut as the US would not allow VS to own a controlling share in DL, the British Government isn't likely to let DL own a controlling share in VS. Even if there is a strong partnership, they will still be two separate airlines. Just as AF, KL, and AL are all separate airlines.

adamj023

Delta owning 49% of the Airline means they get to partner and have an ownership stake in it so they get roughly half the profits of the new entity.

It works out as a business decision for customers as they get SkyMiles and in terms of combined resources between the USA and UK.

Virgin wasn't successful by going at it alone as BA + AA were hurting the airline financially.

The end story is this 49% deal is favorable to Virgin AND Delta and it will get done in all likelyhood.

The combined synergies even with Virgin maintaining foreign ownership in the UK is too strong to pass up.

If I was traveling to the UK I have to admit I like British Airways the best and would not have considered Virgin Atlantic on its own without Delta's partnership. So if I was needing a flight to US/UK consistently AA + BA would have been how I got there with Oneworld.

But with Delta getting in the game, and if the partnership improved their seating options, then Delta becomes a very strong alternative, especially because of the other routes it serves and so it isn't so clear cut as to which airline one would use.

Delta has a very large domestic network in the USA and so if you were using Delta domestically a lot then you would likely use Virgin Atlantic which would be the better deal.

Moral is this deal doesn't hurt anything just allows Virgin to gain more marketshare from Delta customers as Virgin will have a huge airline network to rely on. It will definitely lead to greater profits and take away marketshare from AA/BA and bring new customers on board.

Cloudship

I think you might be assuming more synergies than will be possible. Delta already has a strong international partner - AF/KL alliance. VS will probably enhance their London connections, but that is just one city. I cant see regulators allowing such strong integration. They haven't so far for AA/BA.

Supposedly this is Delta doing an end run and approaching SQ in secret. I can't imagine that will sit well with Virgin either. And, I wonder if there are any requirements in place that SQ at least needs some approval from VS. I wouldn't imagine VS willing to sell that many shares without keeping that in check.

pbarnette

Except that the regulators have allowed AA/BA that same level of integration. AA and BA operate as a single entity over the Atlantic, coordinating schedules and pricing, and sharing profits for the network as a whole. The deal is predicated upon the notion that VS would be allowed into the existing DL/AF/KL/AZ JV and, frankly, there is no reason I can see that the regulators wouldn't let it happen.

Well, I think it plain that DL ain't buying the shares simply because they believe in VS as a stand-alone company. It is pretty clear that SQ will lose money to get out of their investment and I doubt DL has any reason to believe that this is money well spent if it doesn't have a bit more than VS's blessing. The only way this deal gets done is if it is coupled with VS joining SkyTeam and the SkyTeam JV. Without that, there is nothing here for DL.

VS doesn't actually hold many cards here. They are a small carrier that has pretty much no outlets for growth. LHR is tapped out in terms of slots, they lost the BMI angle, and they risk irrelevancy without hooking up with someone and, frankly, DL looks like the best option for them. They bring a strong network at JFK. They compete on only 2 routes (BOS and JFK) and even then, with minimal frequency or capacity. They are well-run and (despite what many would believe) well-respected. And DL is desperate to make a play in LHR in a way that UA isn't. Yeah, VS has routes to Asia, but that ain't their bread-and-butter and they have to know that the ME carriers are shrinking that market by the day.

Honestly, unless SQ tries to overplay their hand, I see this getting done. It makes too much sense for both DL and VS for either of them to not want this badly. SQ has to know that DL is the best option for them at this point.

mnredfox

I hope VS doesn't join ST. Right now I can book VS flights with no YQ, lots of low.

If VS joins ST, I can only look forward to enhanced seamless experience. (think AF/KL and DL right now).

Dan Dare

DL will not control VS. Just as SQ don't control VS today. Furthermore despite SQ being *A this never lead to VS joining.

Speculation that DL and VS will become one both operationally and in terms of FFP's including ST membership are unlikely IMHO. VS and DL will have code-shares, reciprocal lounge and mileage earning/spend agreements. Most likely they will have a closer partnership due to ownership etc. I would doubt anymore than that. SRB has resisted joining alliances.

The new domestic service will help feeder traffic to VS and DL.