Delta is to press ahead with its purchase of a 49% stake in Virgin Atlantic despite the UK carrier reportedly heading for record losses of around £135 million.
Delta is paying $360 million for the stake, which it is buying from Singapore Airlines to bolster its position at Heathrow on transatlantic routes.
“It’s certainly something we are keen to go forward with, it’s an absolute must, particularly for the UK market as there are no true competitors to BA and American Airlines,” said a Delta spokeswoman.
The spokeswoman said Virgin’s financial situation would not detract from the deal. Virgin’s loss is comparatively small when placed against a company the size of Delta, which last year made a $1.6 billion profit. The US carrier sees the long-term benefits of the deal as it cannot compete against BA and AA on its own. Even with the joint venture, Virgin and Delta will have about a 34% share of seats from Heathrow to New York, but BA and AA will have 62%. BA and AA also have 59% of the Heathrow-US market compared with Delta and Virgin’s 24%.
The two carriers will initially codeshare and have reciprocal lounge access and frequent flier schemes. Only following further regulatory approval will a full joint venture involving revenue sharing and marketing, similar to that of BA and AA, begin.
“There are reasons why airlines form these relationships,” said the spokeswoman, who put the benefits of the Air France/KLM/Alitalia joint transatlantic venture at $11 billion.
Virgin lost £80 million last year but a spokeswoman would not confirm the £135 million loss estimate the Sunday Times published. It will reveal annual results in the summer.
In a statement, it confirmed a pay freeze and said fuel prices were putting pressure on its bottom line. It added:
“Virgin Atlantic is committed to a plan of measured changes – both in the short and long term – which addresses these challenges head-on. The joint venture announced with Delta and the new domestic Little Red services are positive steps towards a growth in revenue, which will also increase the current offering available to customers.”