A look at what’s next for Virgin & Delta following US anti-trust approval

V Aus Delta tails.jpgKey changes to the proposed anti-trust alliance between Delta and Virgin Blue (now Australia) convinced the US Department of Transportation to overnight tentatively approve the alliance for five years, saying the two carriers “have made every effort to achieve efficiency-enhancing integration at the outset”. 

Virgin now has the icing on its cake, to invoke a phrase sources familiar with the situation used to describe the anti-trust application: immunity would be a bonus following the alliance’s prime benefits of codesharing and reciprocal frequent flyer agreement, both which Virgin and Delta attained without anti-trust approval and would have settled for without other benefits. Anti-trust immunity is not the “key component” Virgin’s press release makes it out to be.

Nonetheless, it is welcome, especially since the DOT last September proposed to reject Virgin and Delta’s initial application, saying it was lacklustre: “While the applicants may have always intended to expand and optimize the network, a premature grant of antitrust immunity would not have provided the same incentive to pass on the benefits of immunized cooperation to consumers, and those benefits might not have materialised.”

The DOT had two main concerns, which Virgin and Delta quelled last month–a testament, perhaps, to Virgin Australia chief executive John Borghetti’s serious management of his carrier. First was “barriers to integration”, namely making Virgin Australia’s domestic reservation system, Navitaire, compatible with Delta’s and capable of supporting automated codesharing. An upgrade last month to New Skies 3.3.1 extinguished the concern the airlines could not, or not in the short-term, seamlessly handle passengers flying on both networks. “We tentatively find that the harmonization of the systems and business processes enables the applicants to achieve their stated goal of ‘metal neutrality’ in the joint venture, which, in turn, will offer consumers a more seamless network on which to travel,” the DOT says.

Second was the DOT’s concern that combined marketing power and permission to coordinate schedules could see the two carriers decrease their number of flights. Last month’s capacity commitment from Virgin and Delta allayed those concerns.

The approval comes nearly two years since the alliance was proposed by Virgin’s former management in an application that is still relevant and hints what can eventuate from approval.

Virgin and Delta plan to coordinate routes, schedule, and–interestingly–product planning (read: 777 cabin re-vamp coming?). They expect the alliance to lower costs, reduce fares for passengers, and bring passengers more and improved travel options.

The big ticket item is new services from Australia to non-Californian US cities. Delta and Virgin promised to link Australia to US cities outside of California, home to Los Angeles and San Francisco, currently the only two mainland ports directly accessible from Australia. Although Virgin and Delta last month made a capacity commitment, the deal is for any point in the US to any point in Australia, paving the way for one of the two (likely V Australia) to axe LA flights in favour of another city or to add new services.

Delta, having been very pleased with its Los Angeles-Sydney service, has for a number of months been interested in opening a Los Angeles-Melbourne route pending the JV, according to sources familiar with the matter.

Qantas’ withdrawal from San Francisco last week, leaving only United, could present an opportunity for Delta or Virgin to move in on the route. For Virgin, San Francisco has the added benefit of being home to Virgin America, although the carrier competes with Delta. Service to San Francisco or not, that may be one of the most interesting post-anti-trust reactions to watch: seeing how Virgin Australia balances giving business to its sister Virgin Group airline as well as its anti-trust partner.

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