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Virgin eyes Air France-KLM tie-up
By Andrew Parker in London
©Bloomberg
Sir Richard Branson’s Virgin Atlantic is preparing to hold detailed talks about a joint venture with Air France-KLM and Alitalia that would allow the UK airline to offer more flights to Asia, the Middle East and Africa
The move underlines how Virgin, which is striving to return to profitability, is considering profound changes to its business model that could force it to surrender its much cherished independence.
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Virgin reported a pre-tax loss of £80.2m for 2011-12, as high fuel costs and increased competition – notably from British Airways – weighed on the airline.
Virgin is planning to improve its competitive position on routes between the UK and the US through the creation of a profit-sharing joint venture with Delta Air Lines before the end of 2013.
A similar partnership could be put in place between Virgin and Air France-KLM on routes to Asia, the Middle East and Africa, although no decisions have yet been taken.
Delta is proposing to buy a 49 per cent stake in Virgin for $360m, and the two airlines will then combine their schedules between US and UK cities to give more choice to customers . They will share the profits from the joint venture, which is expected to generate $3bn in annual revenues.
Virgin is mainly focused on western routes. While it flies to 19 destinations in the US and the Caribbean, it goes to just four in Africa and six in the Middle East and Asia.
This weakness could be fixed through a partnership with Air France-KLM, because the Franco-Dutch group flies to 25 destinations in Asia, and 60 in the Middle East and Africa. Alitalia, the Italian airline, could be involved in the partnership too.
Julie Southern, Virgin’s chief commercial officer, told the Financial Times: “We are very interested in exploring what further co-operation opportunities there are, particularly with Air France-KLM and Alitalia, but no detailed discussions have happened yet. We look forward to engaging on that in the coming months.”
Jean-Cyril Spinetta, Air France-KLM’s chief executive, said the company was interested in considering a joint venture with Virgin on Asian and African routes. Alitalia declined to comment.
First, Delta and Virgin must obtain regulatory approval in Brussels and Washington for their transatlantic partnership.
Delta already has a joint venture with Air France-KLM and Alitalia on transatlantic routes, and these airlines, together with Virgin, are expected to seek permission from regulators to all collaborate on the pricing and marketing of flights between Europe and the US.
Delta would retain its joint venture with Air-France KLM and Alitalia, which is focused in Europe on hubs in Paris and Rome, and then have a separate partnership with Virgin centred on its base at London’s Heathrow airport.