November 14, 2024

DealBook: Delta Air Lines Ponders Stake in Virgin Atlantic Airways

A transaction would be the latest in a round of mergers that has reshaped the airline industry, as companies in the United States and Europe have looked to consolidation to restore profitability.Luke Macgregor/ReutersA transaction would be the latest in a round of mergers that has reshaped the airline industry, as companies in the United States and Europe have looked to consolidation to restore profitability.

Delta Air Lines is in talks to buy Singapore Airlines’ 49 percent stake in Virgin Atlantic Airways, in an effort to bolster its international operations, particularly flights between New York and London, a person briefed on the matter said on Sunday.

Talks are continuing but a deal will not be announced soon, this person said. Singapore Airlines confirmed that it was in discussions about a potential sale of its Virgin stake, but provided no further details.

A transaction would be the latest in a round of mergers that has reshaped the airline industry, as companies in the United States and Europe have looked to consolidation to restore profitability.

With oil prices remaining stubbornly high and the economic outlook uncertain, many airlines have continued to struggle. That may precipitate even more takeovers, analysts say.

A deal would also be Delta’s most significant strategic move since its 2010 merger with Northwest Airlines, which made it the biggest American carrier until the union of United Airlines and Continental Airlines last year.

It would provide more access to London’s Heathrow Airport, one of the world’s busiest, and expand Delta’s North Atlantic business.

It would also bolster its partnership with Air France KLM, Europe’s biggest airline. Both companies are part of the Sky Team global alliance, and also run a joint business in the North Atlantic market, sharing flights, revenues and costs.

“Delta has shown time and time again that it is extremely opportunistic,” said Brett Snyder, an airline expert. “If it sees a good opportunity, nothing is off the table.”

If it proceeded, a transaction would directly challenge the Oneworld global alliance, whose biggest members are American Airlines and British Airways. The two airlines have an international joint venture. Virgin does not belong to any of the three major airline alliances — Star, Oneworld and Sky Team — depriving it of the ability to coordinate flights and cut costs, which has helped many of its competitors. Star’s major carriers are United, US Airways and Lufthansa. The deal would also give Virgin a strong partner as it struggles to compete against rivals with deeper pockets. Founded by Richard Branson in 1984, the company has long embraced an image of fun travel and cheaper fares.

But that has not helped the airline’s financial condition of late. Virgin lost £80 million, or $128 million, in the year that ended in February, compared with a profit of £18.5 million in the previous year.

The company has been under pressure from the likes of British Airways, whose corporate parent, IAG, bought BMI British Midlands earlier this year. Virgin fought against that deal, arguing that it would give British Airways too much of a presence at Heathrow. But the takeover was completed, after IAG complied with a European Commission order to give back 14 slots at the airport.

The deal may also pave the way for an eventual change of control of Virgin. The company’s chief executive, Steve Ridgway, told The Financial Times in an interview in January that Mr. Branson was prepared to sell some of his 51 percent controlling stake in the airline.

“For Virgin, it’s an exit strategy in an environment where they are being marginalized by alliances on the Atlantic,” said Robert W. Mann, an airline analyst based in Port Washington, N.Y.

A Delta spokeswoman declined to comment. A representative for Virgin was not immediately available for comment.

Article source: http://dealbook.nytimes.com/2012/12/02/delta-ponders-stake-in-virgin-atlantic/?partner=rss&emc=rss

Taking First-Class Coddling Above and Beyond

Carriers on international flights are offering private suites for first-class passengers, three-star meals and personal service once found only on corporate jets. They provide massages before takeoff, whisk passengers through special customs lanes and drive them in a private limousine right to the plane. Some have bars. One airline has installed showers onboard.

The amenities in the back of the cabin? Sparse.

So as domestic travelers take to the skies for the holiday season, most will be in cramped cabins, their food is likely to be bland and they will have paid for it, along with any fees for slightly more legroom or checked bags.

But even as they have cut back on domestic service, including first-class accommodations, the airlines have been engaged in a global battle for top executives and the superwealthy on their international routes. Though only a privileged few can afford to pay $15,000 to fly first class from New York to Singapore or Sydney, the airlines are betting that the image of luxury they project for the front helps attract passengers to the rest of the plane. That includes a growing business-class section with offerings once solely the preserve of first class.

Though first class represents less than 5 percent of all seats flown on long-haul routes, and business class accounts for 15 percent, those seats combined to generate 40 to 50 percent of airlines’ revenue, according to Peter Morris, the chief economist at Ascend, an aviation consulting firm.

As a general rule, business class is five to 10 times the price of an economy ticket, while first class is usually twice the price of business. “First class,” said Brett Snyder, president of Cranky Concierge, an air travel assistance Web site, “is status.”

Until the 1980s, first class was roomier than coach, but not all that fancy. The seats in the front offered more legroom but did not recline more than 40 degrees. The food was better in first class too, though even the meals in coach were better than they are now. With globalization, particularly the rise of Asia, passengers began demanding more from first class, especially with new planes that could fly much longer routes without stopping.

Airlines have expanded their focus — which had been limited to London, Paris, and New York — to emerging economic centers like Hong Kong, Shanghai and Dubai. “Obviously the first-class passenger is a very senior person in his company, coming a long way around the world, and probably doing something very important for his business,” said John Slosar, the chief executive of Cathay Pacific Airways. “He requires to be able to sleep, work on his speech, perhaps take a shower upon arrival, so he can hit the ground running.”

British Airways was among the first airlines to change the definition of what first class entailed by offering flat-bed seats in the 1990s on its long-haul routes.

In recent years, the airlines most aggressive in adding luxury touches to first class have come from Asia and the Middle East, among them Cathay Pacific and Singapore Airlines. Emirates, based in Dubai, came up with personal suites for first-class passengers in 2003 and in 2008 installed two showers on its Airbus A380 planes for them.

European airlines quickly recognized the threat. Air France, for instance, now has a dedicated first-class lounge in Paris with a spa and a restaurant catered by the chef Alain Ducasse. Immigration officers come directly into the lounge to check passports, and passengers are driven to the airplane in a limousine only seconds before the doors shut.

But American carriers were slower to react, largely because they lacked the funds to upgrade their cabins until recently. Now, they have little choice. International rivals are starting to encroach deeper into their domestic markets, beyond New York and Los Angeles. Emirates, for instance, announced it would begin service from Dubai to Dallas and Seattle early next year.

“If you don’t refurbish your cabins, then all you are left with is the low-yielding traffic,” Mr. Morris said. “It’s just not an option.” First class has also served as a lab for in-flight amenities that eventually trickled down to the rest of the plane. Individual screens are now found in the seatbacks in coach. Lie-flat seats have moved to business class.

Article source: http://feeds.nytimes.com/click.phdo?i=86eca1eda6ddd9de8b4cf476e96b1654