Delta and V Australia/Virgin Blue Plan Joint Venture

You know all those low fares we’ve seen on US to Australia routes lately? That’s because with two new entrants, there’s way too much capacity out there and everyone involved is bleeding as they fight for traffic. Now, those two new entrants, Delta and V Australia/Virgin Blue have decided to get together a form a joint venture. Smart move.

I actually touched on this possibility when I interviewed Virgin Blue CEO Brett Godfrey in February. When talking about Delta, he alluded to this . . .

You might say, well, does Delta want to put their traffic on Qantas in Australia? A lot of the market flies beyond Sydney, so maybe that’s an opportunity for us to say, well, quid pro quo . . . . There’s some opportunity there. No discussions held in that regard . . . but that’s an opportunity.

And here we are five months later with a deal in hand. This partnership will have frequent flier reciprocity, codesharing, and it will ask for antitrust immunity so they can discuss routes and fares. This seems like it should be an easy one for the DOT to approve, because up until this year, only 2 airlines flew the route. If this doesn’t get approved, my bet is that Delta’s days to Sydney are numbered, so there is a clear benefit to consumers to approving this deal.

It also allows Delta to feed people into Los Angeles from around the US and Virgin Blue to feed people into Sydney (and other gateways) from around Australia. I would hope that we’ll see some serious frequency cuts in order to try to get back to a more normal level of capacity on the route.

I was emailing with Dan Webb over at Things in the Sky last night about this, and he was very interested in what this means for Virgin America. This type of joint venture certainly diminishes Virgin America’s importance to V Australia. If it weren’t for space constraints, I wonder if V Australia would even rather move over to Delta’s terminal at LAX and leave Virgin America behind.

This also raises the question about what happens to the Virgin Blue/United partnership. Right now, Virgin Blue shares United’s code on flights beyond Sydney in Australia. I can’t imagine Virgin Blue would cancel this deal, but I wonder how United will feel about it. They may very well need the traffic, so it’s possible it could stay, but that would make for an odd arrangement.

I also find myself wondering if eventually Air France could join this agreement with its LAX to Tahiti flight. Virgin Blue subsidiary Pacific Blue doesn’t fly to Tahiti yet, but this could be another interesting twist.

I like this move. It should help to stabilize the routes between the US and Australia, though it should mean fares will rise for consumers. Considering that fares are too low to be sustainable right now, that’s a good thing.

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23 Comments on "Delta and V Australia/Virgin Blue Plan Joint Venture"

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jjulin
Member

Regarding the tie-up between Virgin Blue and United, it looks like that will end, according to the Sydney Morning Herald:

“…The announcement has resulted in Virgin ending its interline agreement with United today….”

http://business.smh.com.au/business/virgin-blue-and-delta-team-up-on-pacific-route-20090709-ddru.html

Dan
Guest

Ok, gotta ask, why do you think Delta’s days on the LAX-SYD market are numbered without that JV? Don’t forget that there’s a bunch of AS feed for those LAX flights as well.

The Traveling Optimist
Guest
The Traveling Optimist
This is a difficult one to figure out. They’re both hurting for business but when you’re hurting for traffic, why agree to feed the other guy? Why would DL want to feed V-Oz at LAX when they have their own flight to fill? Conversely, why would V-Oz want to bring traffic to DL at SYD? It seems more beneficial if they only marketed the upline on each other and retained the overwater for themselves. Otherwise DL would be better to just pull out and leave the market to V-Oz the same as UA/NZ to Auckland. Otherwise it would be the… Read more »
David SF eastbay
Member
You would think Virgin Blue would now have to workd more with V Australia then anyone else since they are both a Virgin product. And if V gets buddy buddy with Delta then Virgin Blue must follow. We could be watching the beginning of a complete Virgin tie up across the board into Skyteam. Sir Richard may not like having a SkyTeam board having controle over his Virgin products, but he might see the furture of himself maybe controling SkyTeam. Another twist would be if Virgin Airways jointed Star Alliance, then V and Virgin Blue would have to dump DL… Read more »
Trent880
Guest

This is like two drunks holding each other up, which is definitely better than their solo prospects. Regardless, DL appears to be the first to pull capacity as they’re going down to 6 weekly in the Fall. Regarding the AS codeshare, AS @ LAX is primarily focused on Mexico, which is not going to drive a lot, if any, traffic to SYD. They do have SEA/YVR/PDX, but so does everyone else. And places like STS, MFR, and even BOI aren’t going to fill up the plane much.

The Traveling Optimist
Guest
The Traveling Optimist
What would Delta have to cut? With only one flight a day unless they go less than daily frequency there doesn’t seem to be much for them to cancel. If anything, be it joint venture or mere marketing alliance, it tastes rather pre-emptive on the part of V-Oz. They get tremendous US feed for all of their services, including MEL and BNE while “jointly” acing DL out of even bothering to enter those markets. That leaves AKL for DL out of LAX with maybe the possibility of Pacific Blue backing them up on domestic New Zealand traffic. I agree with… Read more »
jboekhoud
Member
Disappointing. As unrealistic as it may have been, I was really hoping UA would be the one forced out. I flew SFO-SYD and MEL-LAX with them last month, and it was dreadful – worst plane, worst food, and worst service I’ve ever experienced (and that includes domestic no-name flights in Africa and China!) Mind you, my OZ flights cost $890 including domestic connections to and from Toronto, compared with $1400 for a similar routing on QF last year, so the profits on the US-OZ routes are obviously being slashed. One thing I’ve never been able to figure out is why… Read more »
The Traveling Optimist
Guest
The Traveling Optimist
I wouldn’t put it past Delta at all to look at MEL, BNE and even PER, AKL and CHC the same way the opened and then dropped half of Africa. Wouldn’t have surprised me at all. Their whole strategy seems like a spaghetti test..if it sticks, it’s good. If they went sub-daily, would V-Oz move to the Delta terminal at LAX? Otherwise the ground handling confusion for customers might be a pain. Arcanum, UA will pull out of Australia when it liquidates. Was it coach or premium that you flew? If it was the new “C” class, give us your… Read more »
davidthomson_98
Member

To Arcanum, I would love to know the same thing. Cranky, you say that these slightly cheaper fares are not sustainable. Do you have some solid math to back that up? I’d love to see it. QF and UA have long gouged the consumer across the pacific and prices have been ludicrous IMHO. Prices at the moment are barely evening up with prices to elsewhere in Asia as well as long hauls from the US West Coast to Europe (which are a lot cheaper than flights to Australia.)

Dan
Guest

CF,

I used to be a top tier NW elite. Oz is a definite hole in the Skyteam network — absent DL, I think the only other way to get there is KE through ICN. So if DL were to exit the market, hopefully they could keep some sort of frequent flyer alliance with these guys.

The Traveling Optimist
Guest
The Traveling Optimist
David – I read a book a long time ago called “Flying Colors” by Robert(?) Nance, a former pilot with Braniff. He researched the history of and reasons behind the demise of that airline. In it he shared that profits in one division would sometimes be used to cover losses elsewhere. Given the state of things at United whatever profit they gouged from Australia it’s certainly long gone. Either they covered losses on other routes (HKG, maybe?) or it went in to direct operating costs such as labor. UA pilots on that route are the kings of the hill in… Read more »
Jordan
Guest

QF and UA have raped the consumers on the US- OZ flights for decades. Its about time price came down! They can afford to operate these flights for cheaper!

And ya know.. cheaper fares will attract more people!

DL is just greedy! Views itself as the new Pan Am

davidthomson_98
Member
Travel Optimist, I agree that the price gouging on the route has been going to cover other less profitable routes, which may make perfect business sense (maybe…..) but is a real shame for the consumer. Its not just UA that has been doing this, QF has also been making a sizeable chunk of profit from both the AUS-USA and the UK-AUS routes, where they have held an effective duopoly for years, charging ludicrous prices compared to dollar per mile on other routes in the world. I love competition, and if it forces unprofitable competitors out of the market while lowering… Read more »
The Traveling Optimist
Guest
The Traveling Optimist
David – We are of one accord, mate. The price is always what the market will bear. Where these airlines are in deep trouble is getting used to fat profits and suddenly having a bloated infrastructure to support behind it. That’s where V-Oz comes in, a la Southwest undercutting. Their costs are nowhere the same as UA/QF so they can charge what the market (in the eyes of the consumer) always should have been relative to similar distances and other markets in the world. To charge nearly twice as much for LA-Oz as someone would pay for LA-UK with a… Read more »
Nick Barnard
Member

I can see this help V Australia and Delta drive United out of the market. As weak as they are I wouldn’t be surprised if they’re the next airline to completely go.

The Traveling Optimist
Guest
The Traveling Optimist

Yup….been a while since I’ve picked the book up. Still got it but it is John Nance. My apologies to the author.

The Traveling Optimist
Guest
The Traveling Optimist
Oh..DL to Africa. Yes, the 757 markets are a lot less invested in terms of operating costs but JNB started with 777s, right? Then got downgraded to 767s. Then went back to 777s to JNB and now the CPT flight is being scrapped altogether. Then, based on security, offices and other ground related costs relative to the price in Australia, those would be about the same. Heck, even if the offices were cheaper, I’d pay out the nose for security at Lagos. An article in Airliners (or Airways) told the story of an A330 crew provided with ARMED security just… Read more »
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