Air France-KLM authorized to take a stake in Virgin Atlantic and what this means for the future

The European Commission has just authorized Air France-KLM to acquire 31% of Virgin Atlantic in a three-way deal announced in summer 2017 with Delta Airlines. It ruled that despite the sometimes high combined market shares of Delta, Virgin Atlantic and Air France-KLM on certain transatlantic routes, the transaction does not harm competition.

A strong position on transatlantic routes

Air France will therefore acquire 31% of Virgin Atlantic, currently held by Virgin Group, which will remain a 20% shareholder. The remaining 49% is held by Delta Airlines.

Under the terms of the deal, Delta Airlines and China Eastern will each acquire a 10% stake in Air France KLM.

In this new configuration Delta has a partnership with Virgin Atlantic and is also a member of a joint venture with Air-France-KLM and Alitalia on the Atlantic routes.

What effect will Brexit have on Virgin Atlantic?

With this change of ownership, one wonders what the position of the British carrier is in the context of Brexit. With only 31% of its capital held by Europeans, one can think that Virgin Atlantic will be in the same uncomfortable situation as IAG (British Airways, Iberia, Vueling).

However, Virgin Atlantic, whose core business is transatlantic travel, has a much smaller share of its activity on European routes than British Airways and Iberia and will suffer less. Furthermore, in its core market, the open skies agreement recently negotiated with the US and Canada will allow British carriers to continue to serve these countries without problems after Brexit.

Virgin Atlantic in Skyteam ?

Once this operation has been completed, we can ask ourselves what to expect in terms of a roadmap, as it seems highly unlikely that this is all that will happen.

We will certainly see codeshare between Virgin Atlantic on one side and Air France and KLM on the other.

In this context, why not integrate Virgin Atlantic into the joint venture? This seems a plausible outcome especially in the context of uncertainty surrounding Alitalia and its future plans. We won’t know for sure until March with the announcement of the new owner, which could very well be none other than Delta.

What about Virgin Atlantic’s entry into Skyteam? Even more likely even if we know today that a good partnership is better than a bad alliance.