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Delta officials claim Virgin plans were part of long-term growth strategy

Thursday, March 21, 2013

Delta officials claim Virgin plans were part of long-term growth strategy

In December of last year, Delta Airlines made waves in the commercial aviation sector by announcing it would purchase a 49 percent share in Virgin Atlantic from Singapore Airlines. The agreement was considered a shrewd move by industry analysts, as the acquisition of significant holdings in Virgin will allow Delta to further expand its presence in the lucrative European market, especially flight hubs such as London Heathrow Airport. Prior to the announcement, officials at Delta remained tight-lipped about their plans, but according to Buying Business Travel, the deal was negotiated over a three-year period prior to the official declaration of the purchase.

Regulatory compliance
Although little opposition to the deal is expected, the agreement is still subject to approval by aviation regulatory committees in both the U.S. and Europe. The acquisition is unlikely to be completed any sooner than autumn of this year, but once the details have been finalized, Delta will operate a total of 21 flights from Heathrow to the U.S., significantly strengthening its position in the valuable transatlantic market.

In addition to providing Delta with greater access to the European market, the acquisition of Singapore Airlines' share in Virgin Atlantic is expected to boost Delta's presence as a leading provider of business-class flights. The carrier has made expansion into the corporate aviation market a priority, with revenues from business travel increasing by 8 percent in February alone. Heightened confidence in the overall economy has fueled demand for business-class flights, particularly as the automotive, manufacturing and financial sectors begin to show modest signs of recovery.

"One of the strategies that has defined the turnaround at Delta is to make our product more appealing to business travelers," said Ed Bastian, president of Delta, as quoted by the news source. "They are higher yielding passengers and it's a premium you desire on your network. They are the customers paying a higher premium onboard and have higher requirements, and we are satisfying that. We've been having great success in corporate market share, we've been growing that market in double digit growth in recent years."

A lucrative market
Business-class routes between London and the U.S. are among the most valuable in the world for airlines. According to Bloomberg, Delta's acquisition of its shares in Virgin Atlantic means that the U.S.-based carrier will control approximately 25 percent of the total transatlantic market. By comparison, British Airways and American Airlines currently hold around 60 percent of these lucrative routes.

In addition to providing Delta with a greater share of the transatlantic corporate aviation sector, the move is also likely to generate substantial revenues for the carrier. North Atlantic business flights between London and the U.S. account for almost 25 percent of global aviation revenues, according to the news source, suggesting that the $360 million Delta paid for Singapore Airlines' share in Virgin Atlantic could prove to be a shrewd investment.

Delta has made no secret of its intentions to aggressively move into the corporate aviation sector. According to Routes News, eight of the top 10 transatlantic corporate markets are connected to London's Heathrow International, and Delta has already implemented a series of luxury features in its business-class service, including fully reclining beds and in-flight Wi-Fi.

Executives heading to London in the near future may find that Delta could be an attractive option for transatlantic flights. Upon arrival in the Big Smoke, business travelers may want to seek out alternatives to corporate suites in chain hotels by staying in serviced apartments and corporate housing. After all, with airfare on the rise and consolidation of major airlines, the need to save money will likely remain a top priority for many travel management professionals.