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Virgin and Delta team up in bid for world's most lucrative airline route

By Daisy Carrington, for CNN
updated 4:13 AM EDT, Fri July 19, 2013
STORY HIGHLIGHTS
  • Delta takes 49% stake in Virgin Atlantic
  • Airlines hope that codeshare will increase their trans-Atlantic success
  • UK-U.S. routes are the most world's busiest and lucrative
  • Virgin seen as a much more niche airline than Delta

(CNN) -- One of the most valuable routes in the airline industry is the one that joins New York to London. It is the world's busiest route, one particularly frequented by business travelers, and currently, it is dominated by United Airlines.

All that is set to change, thanks to a pivotal partnership between Delta Airlines and Virgin Atlantic.

Last month, the two airlines unveiled a codeshare agreement across 108 routes, with Delta acquiring a 49% share of the British carrier. For Delta, the deal provides access to a market that, though lucrative, has been difficult for them to crack.

"Heathrow is the most important destination for the U.S. business traveler, and we've not been able to provide the global frequency that our customers need," admits Edward Bastian, Delta's president. "Virgin was the best way to get to them."

On board Virgin Atlantic
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Unlike Virgin Atlantic, which has experienced two years of steady financial losses, Delta has been in an upward expansion.

It is the fastest-growing carrier in New York -- abetted by a massive expansion of two of the city's major hubs, including a $1.4 billion renovation of Terminal 4 at JFK, and $100 million upgrade of its facilities at LaGuardia Airport.

While Delta is gaining momentum in North America, procuring slots at Heathrow has proved arduous for the airline, according to George Ferguson, senior airline and aerospace analyst at Bloomberg Industries.

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We've not been able to provide the global frequency that our customers need.
Edward Bastian, president Delta Air Lines

"The largest number of slots at Heathrow are dedicated to Virgin and British Airways flights. Delta has had a hard time getting in there," he admits. "This deal really gives them a lot of access to Heathrow, which is an important market in New York."

Currently, Delta has nine flights operating between Heathrow and the U.S. When the partnership takes effect, that number will jump to 23.

Compared to Delta, Virgin is a much more niche airline. It serves a smaller, predominately British clientele, providing them with a more upmarket experience. Despite Virgin's strong brand, its image doesn't resonate as well outside the United Kingdom. Ideally, the deal with Delta will introduce the carrier to a wider audience.

"I think the spirit of our company will be very attractive to the U.S.-based customers that Delta currently serves," says Craig Kreeger, CEO of Virgin Atlantic Airways. "I think that by becoming more successful and being able to generate more fans in the United State, it's going to spur even more innovation (at Virgin)."

As the two companies join houses, so to speak, experts are pondering which brand will be more prominent.

"From a Virgin perspective, I expect not much will change, at least not for a while" says Ferguson. "Virgin has a pretty strong brand across the Atlantic -- the better brand right now -- and Delta's going to want to leave that in place."

I think that by being able to generate more fans in the United State, it's going to spur even more innovation at Virgin.
Craig Kreeger, CEO of Virgin Atlantic Airways

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Asked if there's a chance Virgin might lose its identity in the process, Kreeger says he's not worried.

"The Virgin brand and Virgin style is one of the things that attracted Delta to us in the first place," he says. "I think they're looking forward to being able to offer their customers more choice."

For the deluge of passengers that fly Delta and Virgin across the pond, the partnership could ideally result in cheaper fares.

"I see them being able to give corporate customers much more options, and I see them really being able to kick off some extensive routes with above-average yields," says Ferguson, who adds that in the airline industry, fuller planes usually results in cheaper tickets.

"London and New York are sort of dominated by the financial services business, which has taken it on the chin lately," notes Ferguson. "As a result, you have a consumer that is more price conscious and you need to find a way to get them a cheaper ticket while still making money. That's why you need to get planes full. For Virgin, this is the start of that process."

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