Virgin Atlantic in advanced alliance talks — Star Alliance is the obvious choice

Bloomberg is reporting that Virgin Atlantic is in “fairly advanced talks” to join one of the three major alliances:

“Virgin Atlantic has always enjoyed its independence, but since pretty well every competitor that we have has an alliance I think we have finally decided that to survive we need to have an alliance,” Branson said in an interview with Bloomberg Television in Mumbai today. He declined to name the group the London-based airline is speaking with.

By far the most logical choice for Virgin Atlantic would be Star Alliance, in my opinion. As it stands, Virgin Atlantic is 49% owned by Singapore Airlines, and partners with a handful of Star Alliance airlines. British Midland (a Star Alliance member at the time) was recently taken over by British Airways, so Star Alliance now doesn’t have an airline based in London. OneWorld is completely out of the picture given that British Airways belongs to it, which leaves SkyTeam. While I’m sure SkyTeam would like to have Virgin Atlantic, I’m not sure how much value they could add for Virgin Atlantic.

While Star Alliance is the obvious choice, I suspect the one potential roadblock would be United. They have “veto” rights on airlines joining the Star Alliance, and they compete head-on with Virgin Atlantic out of Chicago, Los Angeles, Newark, San Francisco, and Washington Dulles. It’s interesting to note that Virgin Atlantic used to partner with Continental, and shortly before the merger with United that partnership ended. That led me to believe that United was behind that decision, given that they didn’t want to partner with an airline that competed with them directly on several routes.

The thing that makes Virgin Atlantic unique is that they fly almost exclusively longhaul, meaning they don’t add much value for connections. For example, Lufthansa adds a huge amount of value to United by connecting United passengers to dozens of destinations in Europe, and United adds a huge amount of value to Lufthansa by connecting Lufthansa passengers to dozens of destinations in the US. Virgin Atlantic can’t add the same value since they have fewer destinations.

So it’ll be interesting to see how this plays out. I suspect Virgin Atlantic would like to join the Star Alliance and probably won’t have an issue joining simply because they already have several partners in the alliance, and they could put pressure on United to let them join. That being said, if United wants to play hardball, they could deny them entry, and that might push Virgin Atlantic to SkyTeam.

Just my two cents… what do you guys think?

Comments

  1. Virgin joining Star Alliance would be great. I have twice flown US to London on Virgin and then London to Singapore on Singapore Airlines. It would be great to get Star Alliance points on United for the US to London flight.

  2. I’m going to throw a damper on the party, and I have a feeling it will be SkyTeam.

    … just a hunch based on what other Virgin Airlines are doing…

  3. Not sure that a VS move to Skyteam would be much different than to *A, as DL would be in the same position as UA given the above scenario TATL. However, DL already has a relationship with VA. *A obviously seems better for the FF. What happens to VX in either case since they are competitors in the USA?

  4. Skyteam makes much more sense as it’s needs a better London presence while Star has plenty.

    Branson’s been saying this for over a year. He’s just trying to get the most $ from one or the other and Skyteam is the only one that needs him.

  5. I think Skyteam will make a big push for VS and Virgin Australia as well, as tassojunior said Skyteam has the least presence at LHR of the three alliances.

  6. I am leaning towards them heading to Skyteam, but there is always the chance it could end up similar to the ST/OW competition when JL was looking for money. DL tried to pull JL to Skyteam not to strengthen their own alliance, but to weaken oneworld, and I can see Star doing that.

  7. I think it makes more sense for VS to join SkyTeam, but as Kris said, I think *A could try to take VS away from SkyTeam just to weaken them.

  8. I disagree with you, @Lucky. I think it will be SkyTeam, but who knows… It’s just that from Branson’s statements it appears that VS wants more than just an earn/burn deal — they want to improve revenue, which means they’ll be pushing (probably) for a JBV. This would be very difficult to get with *A seeing as to how both VS and *A are already entrenched at LHR.

  9. I just don’t see how they’d add any value to SkyTeam. With Star Alliance, Virgin Atlantic would get at least some feeder traffic. Would the same be true with SkyTeam? I can’t think of many cases where they would. Air France is based just about 200 miles away and flies everywhere they do, so I doubt they’d send each other much traffic. Yes, there’s Delta, but other than that, I don’t see how they’d add any value.

    @ Stephan — I’d be shocked if VX is in business much longer.

  10. They could always form their own i.e. Virgin Airways? Always struck as to how disjointed their FF programs are world wide. VA has closer tie in with Eithiad, Singaores and Air NZ than any other Virgin “Airline”. VS has just started domestic (short haul)in UK with EU flights to be announced shortly. Otherwise it’s Star and they finally get a domestic partner back in Oz. Across the ditch to the states the choices in Star are UA oldest 747 in the sky, Air NZ 3 hours longer all via NZ. Best direct still Emiroo (Qantas), Virgin, AA. Remember though with Richard you are dealing with a master of SPIN.

  11. If VS doesn’t join an alliance should we just skip next year’s announcement by Branson that VS is about to join an alliance?

  12. Star Alliance makes more sense from a flyer’s point of view as well as the relationships already being there. The addition of a SYD-HKG nonstop in Star would be great too. The key with VS would be that it adds better LHR connectivity to Africa and Asia than exists at the moment. The US route network is less important given the strength of UA there. Assuming that VA will be more inclined to go where VS goes (and that is no certainty), it would also help Star get back into Australia which could be useful.

    Skyteam is an interesting option. VS/VA in ST would would strengthen Asia though it would still be light in SE Asia. Africa would also get a pick up as would West Coast to LHR connections in the US as well as Canada to LHR. If VA follows, it would strengthen the VA/DL trans pacific tie but would make the Trans Tasman agreement with NZ more difficult.

  13. as an Aussie any alliance is great providing VA joins too. I think Skyteam, although they would be competing with Garuda on Aust to Bali flights. Garuda has just signed a deal with Etihad and changing its DXB stop to a AUH with code shares on EY.
    NZ looks like it could be happy to leave Star ….

  14. I thought SQ is pretty influential in the alliance, so their opinion does carry quite a bit of weight?

    Anyway, there have been cases where an airline had partnerships with various airlines from one alliance, then joined another. Malaysia Airlines is a fine example – they had partnerships with KL, AF, DL, Alitalia etc, but went on to join OneWorld.

    Only time will tell, I suppose! (Please please please let it be Star)

  15. One potential benefit to United for VS to join Star is their excellent links to Africa which no US carrier current does well.

  16. Star after today with what happened down under with VA buying 60% of a Soingapore subsidary and SA buying 10% of VA. Money’s on Star or a Virgin/Singapore Alliance.

  17. I thought VS was going to form their own alliance with the other two Virgin brands.

    They honestly should have formed an alliance with one of the gulf carriers

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