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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