Delta Moves Again to Grow in New York, Boosts London Access

NEW YORK ( TheStreet) -- Continuing its methodical build-up in New York, Delta ( DAL) said Monday it will code-share with new partner Virgin Atlantic on 108 routes and, most importantly, on nine daily flights between New York airports and London's Heathrow Airport.

Delta opened its new $1.4 billion JFK terminal on May 24. The terminal, as gleaming and inviting and full of food options as it is, has lacked one thing: frequent service to London Heathrow, the favorite international destination for New Yorkers.

Currently, Delta has three daily departures from JFK to Heathrow. By contrast, rival American ( AAMRQ.PK) operates four daily departures from JFK to Heathrow, while its code-share and joint venture partner British Airways operates eight. British Airways also operates three daily departures from Newark to Heathrow.

New York/Heathrow expansion was a principal reason for Delta's December deal to acquire 49% of Virgin Atlantic. Speaking at an investor conference in March, Delta President Ed Bastian said the route "is the driving force behind our investment decision at Virgin Atlantic."

Now, the Delta code will be on six additional New York/London routes, including four daily Virgin flights from JFK to Heathrow and two daily Virgin flights from Newark to Heathrow. That will give Delta passengers nine daily options to get from New York to Heathrow and seven daily options from JFK. Overall, Virgin Atlantic will put its code on 91 Delta routes, including both trans-Atlantic and domestic U.S. routes, while Delta will place its code on 17 Virgin Atlantic routes, including Little Red routes connecting London to Manchester, Edinburgh and Aberdeen.

Codeshares enable airlines to allow passengers to book flights on each other's Web sites. The Delta/Virgin Atlantic codeshares will take effect July 3, with codeshare booking available starting June 29. Starting then, customers can decide where they want to accumulate frequent flier miles.

Besides the flights from Heathrow to the New York area, Delta will also be able to put its code on Virgin Atlantic Heathrow flights serving six U.S. airports -- Boston, Washington Dulles, Los Angeles, Miami, Chicago and San Francisco, as well as Vancouver, Canada. Delta has said it would begin Heathrow-Seattle service if the joint venture is approved.

"This announcement is primarily about New York, and about helping Delta to increase its utility to the business traveler," said Henry Harteveldt, analyst for New York-based travel consultant Hudson Crossing. "But it's not all about New York. Once Delta and Virgin get everything put together, Delta can put its brand on Virgin Atlantic flights out of Boston, Miami, Los Angeles and the other cities, all strategically important markets for Delta, either because they are hubs for Skyteam, as LAX is, or because they are dominated by other alliances like Oneworld in Miami and Star in San Francisco."

At Miami International, for instance, it is tough for Delta to establish a presence, Harteveldt said, because it already serves every major Florida city through Atlanta. But having Virgin Atlantic fill much of its airplane at its London hub means Delta would be able to provide a non-stop London flight to its passengers who originate in South Florida. In Los Angeles, meanwhile, Delta already has a presence, but it has lacked non-stop London service. "This will make Delta that much more competitive," Harteveldt said.

In December, Delta announced it had purchased 49% of Virgin Atlantic from Singapore Airlines. On a conference call with reporters on Monday, Bastian said Delta has long had an interest in Virgin Atlantic. Asked why it took years to put a deal together, he responded, "As between us and Singapore, (negotiations over) the value of the shares is what led to the length of the negotiations."

Speaking at the March investor conference, Bastian said Delta's New York buildup is feeding revenue gains. He said Delta has gained over seven points of corporate market share in New York over the past three years, leading to a margin gain of more than 300 basis points in New York. "We're still in the building phase," he said.

The carrier has boosted its capacity at LaGuardia Airport by 45% over the past year, a result of an asset trade with US Airways. ( LCC). But access to Heathrow remained "our single biggest challenge in corporate customer negotiations" in New York, Bastian said. According to statistics compiled by Delta, Kennedy/Heathrow is the No. 1 U.S. international route, accounting for 2.7 million passengers a year. It dwarfs every other international route. No. 2 is Los Angeles/Heathrow, accounting for 1.4 million passengers. The next three routes, with 1.2 million passengers annually, are Chicago/Heathrow, New York/Paris and Newark/Heathrow. The Virgin deal adds capacity in three of those four.

Last week, the European Commission and the U.S. Department of Justice approved the Delta/Virgin transaction, clearing the way for Delta's announcement that it will put its code on 17 Virgin Atlantic routes, while Virgin Atlantic will put its code on 91 Delta routes. The U.S. Department of Transportation continues to review the two carriers' application for antitrust immunity enabling a proposed joint venture operation between the U.S. and the U.K.

ATI would enable the carriers to jointly discuss pricing and scheduling and to split revenues. Bastian said the carrier expects to have ATI approval in the coming months. "We will initiate the joint venture at the start of 2014," he said. "We will then share revenues as well." Going forward, Virgin Atlantic said it will consider whether to join Delta in the Skyteam alliance.

-- Written by Ted Reed in Charlotte, N.C.

>To contact the writer of this article, click here: Ted Reed

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