Special relationships
By Alison Tucker
05 November 2007
While the future of mergers between carriers in the transatlantic market is in limbo, alliances with potential merger implications seem to be on the cards.
Air France announced the successful completion of a joint venture deal with Delta Air Lines in October.
The deal comes ahead of the adoption of the United States/EU 'open skies' treaty signed earlier in 2007. Coming into effect on 30 March 2008, the treaty is set to liberalise the transatlantic market and end 40 years of bilateral restrictions that have limited operations between London Heathrow and the US to four favoured carriers - British Airways (BA), Virgin Atlantic Airways, United Airlines and American Airlines.
The new found freedom created by the treaty is resulting in Heathrow - as the most important gateway for traffic between Europe and the US - becoming the focus of a turf war.
Under the terms of the Air France/Delta deal, from the end of March 2008 the two carriers will share incremental revenue and costs, and be permitted to market jointly and collude on fixing capacity, prices and routes on 19 transatlantic links between their hubs, as well as on Heathrow services to the US.
Air France is launching a daily service between Heathrow and Los Angeles under its own brand, while Delta will launch two daily services between Heathrow and John F Kennedy International Airport in New York, and one daily service between Heathrow and its Atlanta hub.
Delta will lease three pairs of take-off and landing slots at Heathrow from Air France. The French carrier will free up the necessary slots by cutting its daily services between Heathrow and Paris Charles de Gaulle.
The partnership will be extended to cover all routes operated by Delta and Air France between Europe and North America in 2010, generating about USD8 billion per year.
It is expected that the partnership will eventually expand to integrate the transatlantic operations of KLM and Northwest Airlines. The four airlines are members of the SkyTeam global alliance.
The KLM/Northwest and Air France/Delta partnerships already have antitrust immunity to operate transatlantic joint ventures. But the carriers have an application under examination by the US Department of Transportation (DOT) for an eventual four-way transatlantic joint venture.
The Air France/Delta partnership follows the antitrust immunity status granted by the DOT to United, British Midland (BMI) and Lufthansa, along with other transatlantic Star Alliance partners Air Canada, Austrian, LOT, SAS, Swiss and TAP in September. Immunity becomes effective with the enactment of the open skies treaty.
BA has countered the threat these alliances represent to the carrier's transatlantic supremacy at Heathrow by transferring flights from Gatwick to Heathrow and announcing that closer ties with BA's Oneworld alliance partner American Airlines are once again on the cards.