Air France-KLM ( AKH) and Delta ( DAL) have agreed to form a trans-Atlantic joint venture, enabling them to add a series of key routes, including four from London's Heathrow Airport, and to share billions in revenue. The carriers, which have had antitrust immunity for trans-Atlantic operations since 2002, say they will share $1.5 billion in revenue in 2008. By 2010, the amount will increase to $8 billion, they say. For Delta, the joint venture is expected to add about $100 million in pretax profits starting in 2011, with the amount increasing over time to around $200 million, said Executive Vice President Glen Hauenstein, on a conference call with reporters. "We are working very hard to create a world class network," Hauenstein said. "In order for us to succeed long-term, not only do we have to have great network positions and a great product, but we also need great distribution." The joint venture should help achieve that aim, as it will combine Delta with the carrier that has the most passengers and the largest frequent-flier program in Europe. It also brings the Air France hub at Paris' Charles de Gaulle Airport, Europe's second-busiest airport and the world's seventh-busiest, into Delta's network. Additionally, Delta gains access to congested Heathrow for little more than the cost of lease payments. Delta shares were up 1.2% at $20.32. Air France also rose more than 1%. Starting next spring, the two carriers will use Air France's Heathrow slots to offer two daily Delta flights to New York's Kennedy Airport, a Delta flight to Atlanta and an Air France flight to Los Angeles. All told, the joint venture will include 19 daily hub-to-hub flights between de Gaulle, Orly Airport and Lyon in France and Delta hubs in Atlanta, Cincinnati, New York and Salt Lake City. It will also include all U.S.-Heathrow flights operated by both carriers.
By 2010, the venture will expand to include all trans-Atlantic flights by both carriers, plus Los Angeles-Tahiti flights. Beyond a baseline formula, profits will be split equally. In key ways, the joint venture resembles the 14-year-old alliance between KLM and Northwest ( NWA). In both cases, antitrust immunity allows carriers to discuss fares, schedules and marketing. In 2004, Air France acquired KLM. KLM and Northwest "have had incredible success," Hauenstein said. "But if
they can make such a success of Detroit to Amsterdam, what kind of success can we have" on stronger routes like Atlanta and New York to Paris? The venture enhances de Gaulle's potential as an alternative to congested Heathrow, where airline growth is severely limited. While Heathrow is a magnet for London business traffic, "we can take traffic that would flow through other hubs including Heathrow and move that onto Delta/Air France," Hauenstein said. This summer, Air France, KLM, Delta, Northwest and two other partners filed with the Transportation Department for shared immunity. Looking ahead, Delta said, approval could lead to a four-way joint venture agreement and, ultimately, the integration of trans-Atlantic operations.