What Are The Chances That Virgin Atlantic Joins SkyTeam?

Earlier I wrote about how Delta is buying a 10% equity stake in Air France-KLM, and Air-France KLM is buying a 31% equity stake in Virgin Atlantic. Delta already owns a 49% equity stake in Virgin Atlantic. On top of that, China Eastern is buying a 10% equity stake in Air-France-KLM, and Delta already owns a small stake in China Eastern. The common link here is that Delta is everyone’s daddy.

Reader Aamod asked if I think this means that Virgin Atlantic will finally join SkyTeam, given that they’ll now be 80% owned by SkyTeam airlines. It’s a good question, so let’s dig a bit deeper.

Rumors about Virgin Atlantic joining an alliance are nothing new

For years there have been rumors of Virgin Atlantic joining one of the major alliances.

Singapore Airlines used to own a 49% stake in Virgin Atlantic, and back in the day the rumor was that Virgin Atlantic would join the Star Alliance. This was around the time that British Airways bought British Midland, so it didn’t seem totally out of the question, given Star Alliance’s hole in London. Furthermore, Virgin Atlantic already partnered with several other Star Alliance partners.

At the time, Richard Branson was even quoted as saying that he thought Virgin Atlantic needed an alliance in order to survive. Many of us assumed this meant they’d finally join Star Alliance.

As it turned out, he was talking about a different kind of alliance, because just weeks later, Delta announced that they were taking over Singapore Airlines’ 49% stake in Virgin Atlantic. That new “alliance” came in the form of a transatlantic joint venture that has worked extremely well for both Delta and Virgin Atlantic.

Then it started to look like Virgin Atlantic might join SkyTeam, given Delta’s ownership and close cooperation with them.

Once this deal closes, Air France-KLM and Delta, both of which are in SkyTeam, will own 80% of Virgin Atlantic. Surely this will finally cause Virgin Atlantic to join SkyTeam, right? I don’t think so…

Why I think alliances are (mostly) dead

The Star Alliance was formed about 20 years ago, and at the time it was the hottest club in the industry. We quickly saw two other global alliances form, and before we knew it, dozens of the world’s leading global airlines joined these alliances.

But in the past few years we’ve seen virtually no new airlines join the three global alliances. This is despite the fact that we’ve seen tons of new partnerships. This trend isn’t a coincidence.

Look at Qantas’ partnership with Emirates, which has completely transformed their route network, even though they also belong to oneworld.

Look at Delta’s joint venture with both Virgin Atlantic and Virgin Australia.

Look at Air Canada recently announcing new partnerships with Cathay Pacific and Virgin Australia, even though neither of those airlines belong to Star Alliance.

In the case of SkyTeam, look how Delta and Korean Air were both part of SkyTeam, but up until now Delta isn’t isn’t awarding any elite qualifying miles for travel on Korean Air. I imagine this will change soon given their new joint venture, but at least up until now this has been the case.

At best, global alliances have plateaued and reached their full potential. At worst, they’re a dead concept.

Sure, there’s a chance that Virgin Atlantic does join SkyTeam, but I doubt it. The lack of activity when it comes to the big three global alliance is telling, at the same time that the number of small partnerships is growing at a fast pace.

I think the much bigger question is which big global airline will be the first to pull out of one of the major global alliances.

Do you think Virgin Atlantic will join SkyTeam? Do you agree that the three traditional alliances are dying?

Comments

  1. i think delta is being very clever, watch and see what they will do? maybe buy , into someone else, very soon,.at the moment if you are KLM/AF members, or Virgin, and fly, on both of these c carriers, you have to have separate program cards, i.e. Virgin,. AF/KLM, but if you have a Delta sky miles , you put your Delta number in , and get a credit to Delta, Delta are making it easier to get upgrades on Virgin, but AF/KLM, can still be difficult, as they do look after their own members first,so now Delta has a share,I can see , Sky miles, being similar to blue? which they need to do, KLM, which is great, but as Amsterdam, they do treat you second to their members, so Ive seen lower members get an upgrade, before say a diamond? delta, so it should be more even,

  2. Agree completely. Alliances were a quick way 20 years ago to expand global presence via codeshares. Joint ventures offer better value to airlines now, as there is often revenue sharing, and carriers can coordinate pricing and schedules. Alliances can’t compete with joint ventures anymore.

  3. I spoke to someone at Air Canada a couple of months ago about this question of alliances and he said that alliances have become unwieldy as you need to seek consensus among all the partners so it is impossible to get things done. In the end it is easier to just do bilateral arrangements.

  4. @Karim J – I can see how that would be.

    Back in 1999/2000, a friend of mine at one of the large strategy consulting firms was assigned to a project for one of the major alliances, and for awhile she spent time going around the world, as different meetings would be held in the cities where each airline was based. But at that time the number of airlines in the alliances was significantly smaller than we see not. She remarked to me how collegial things were between the member carriers. Which made sense considering how few alliance members there were.

    So I would expect, as you were told, that membership could become unwieldy with the number of airlines in all three of the large alliances these days…

  5. I think the logic regarding VS staying out of SkyTeam makes sense, especially when you look at some of the other VS partners (like ANA).

    When you look how Delta treated Koren Air a few years back (tier 4 partner), yet being a SkyTeam member – Delta started the trend of diminishing the alliance importance.

  6. I have been a member of Flying Club, and the old Virgin Freeway scheme, for 27 years, and am also 9 years in, to the 10 year qualification period, for retaining Flying Club Gold for life.
    I am hopeful that the programme will continue, and if not, that some kind of reciprocal transfer benefit will be introduced to whichever programme becomes the lead.
    Misguided loyalty if not…..

  7. This DL/AF/KL/VS joint venture is the future. I would say the next thing we are going to see is DL/etc burying up enough of Alitalia to save it and bring it into the joint venture as well.

  8. Alliances now treat partners like ugly step children so yes the concept is no longer useful.

  9. Do you think that in another 20 years, the major alliances will have mostly dissolved or airlines would have left the alliance in favor of strong partnerships with different airlines?

    How do you think that will transform redeeming partner award flights? Maybe something like Alaska’s partnerships?

  10. I don’t really understand why Star Alliance is an old thing. The most beneficial aspect of the alliances are code share flights right?

    Take Turkish Airlines for instance, they don’t fly to New Zealand but since they are both in an alliance you can still fly from Istanbul to Auckland. Otherwise you have to buy a return flight to Hong Kong from Istanbul and a return flight from Hong Kong to Auckland on two different airlines which costs double the price.

    You can’t have partnerships with every individual airline if there isn’t a greater organization behind it, it would be one big mess.

  11. Am not impressed with Delta, had several first class flights booked for november which i had to cancel and unfortunately they kept every dollar, hiding behind a “we have a new clause in our terms and conditions” very poor stuff Delta, considering it was first class not discount economy.

  12. The trouble with the alliances, in particular Star and Skyteam, is, that they became too large. There is virtually no synergy between some of their members (while there is between some others). For instance, in Star LX and CM basically not working together, or in Skyteam, I don’t witness any collaboration say between OK and MF. But still, there is some cost associated, mainly in terms of IT, but more visible in terms of Fast Track or Lounge Access.

    That’s why the question is whether VS is offering a benefit for all the other Skyteam members (apart from AF/KL/DL)? Now, VS is kind of a strange species: Its business model is mid- and long haul only and connects everything to London. Now this may indeed be attractive for some other Skyteam members, in particular such not offering any flights to London but already serving VS destinations. For them it might be an easy and cheap network extension to the UK.

  13. I read the article and read it again, and I couldn’t find your argument as to why alliances are “dead” aside from lack of new members. If this is our starting point, then yes, the big-three alliances are, indeed, dead. However, I don’t see the concept of alliances going away, merely changing. Delta’s strategy of buying stakes in different airlines is nothing new. Etihad has been doing it (and failing miserably in the case of Air Berlin and Alitalia) for years.

    I do think that the major alliances have grown too large and include far too many minor, niche players that add plenty of complexity, but not much value to larger members – particularly in Eastern Europe, and, to a lesser extent, East Asia. Ultimately I see this sort of deep integration between top-tier airline partners becoming the new norm. I wouldn’t be shocked if, in the near future, we see United and American getting much cozier with their JV partners and leaving the Czech Airlines and TAROMs and Sri Lankans of the world by the wayside.

  14. Joint ventures are illegal trust oligopolies that are protected by big business and big government to the harm of the pax

  15. Sorry, Shsjsjdk. Alliance are perfectly legal ways for companies that aren’t allowed to merge because of xenophobic restrictions on ownership co-operating.

    As to alliances, Star is far too big (as is probably SkyTeam) – oneworld is a better size and they do seem to cooperate a bit more than the other two. I value my Emerald status and the benefits it gives me when I’m not flying with my home carrier.

  16. I think that Turkish Airlines would quit Star Alliance sooner or later. In my opinion, they haven’t seen much benefits of the alliance after cutting codeshares with LH. If they can codeshare with EY/EK on Australian routes and keep the codeshare with Jetblue on mainland US, this could be more beneficial to them.

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