So the rumors were true. Delta has decided to buy Singapore’s 49 percent stake in Virgin Atlantic, and I’m a bit surprised. I was expecting something a little more (somehow involving Air France/KLM) for Delta to bother getting involved here, but I was wrong. That doesn’t mean it’s a terrible idea, but it does leave some questions. Delta clearly wants to plug a hole here. I just wonder if it will work.

The deal goes down like this. Delta is buying 49 percent of Virgin Atlantic for a mere $360 million. Singapore Airlines originally bought that stake in 1999 for north of $900 million. Ouch. Singapore’s vision for Virgin Atlantic never materialized, and it wanted out. Delta provided that out.

So what is Delta going to do with a non-controlling stake in this airline? Right off the bat, it is putting together a joint venture between the US/Canada/Mexico and the UK. There will be reciprocal frequent flier benefits and reciprocal lounge access. Delta and Virgin Atlantic will also co-locate where they can. In London, Delta will eventually move to Terminal 3 to be near Virgin Atlantic. You can see how little benefit Delta must be getting from its SkyTeam partners there if it’s going to leave SkyTeam Terminal 4. At JFK, this problem will be solved when Delta moves into Terminal 4 there. Virgin Atlantic is already in that terminal.

The Benefits
For Virgin Atlantic, this is huge. Singapore didn’t provide much in the way of feed for the rest of the Virgin Atlantic network. However, bmi did provide a ton of feed until it was snapped up by British Airways. Virgin needed a network, and Delta can provide that from the US. This should help fill up those US-bound airplanes with Americans instead of Europeans, and Virgin desperately needs that. If there is an eventually inclusion into SkyTeam (certainly expected, but not part of today’s announcement), then that will help further.

For Delta, this is another niche player that it can scoop up to help fill a void in its network. And this void is a really important one. Despite every bone-headed effort by the UK to make London a less important world air travel hub, it is still a major financial capital. And if Delta truly wants to be a global airline, it needs to have better service than it has today.

It’s About New York
Of course, British Airways and American have the strongest position in London by far. Delta would have been hard-pressed to grow a position itself considering the slot restrictions at the airport along with the already ample capacity on these routes. With this deal, Delta becomes more relevant in London, but more importantly, it becomes more relevant in places like New York, from where London is one of the most important business destinations. This simple chart showing daily flights each way from all New York airports should make it very clear.

I told you it was a simple one. Today, Delta is an afterthought. If its schedule fits a loyal traveler’s needs, then people will take it. But more often than not, that probably won’t happen. Combined with Virgin Atlantic, however, there is a very respectable schedule that now also covers the other side of the Hudson in Newark. Delta becomes relevant.

While New York is the big prize, there certainly is more than that as well. This gives Delta a way of serving all of its big city US-based travelers who need to get to London without stopping. For example, it gives Delta a presence from LA to London, a market that it once thought was important enough for Air France to try to fly. (It failed miserably.) But with the Virgin Atlantic operation, it lets Delta get into the game with an established player.

Fixing Virgin
This doesn’t mean all is rosy in this deal. Virgin Atlantic is losing money. Between the US and UK, you can see a clear path here that allows Delta to get its customers on Virgin Atlantic airplanes and that’s good for Virgin Atlantic’s bottom line. But there is still the rest of the network to contend with. Virgin Atlantic flies some not-so-smart routes, like the kangaroo route bloodbath down to Sydney. With Delta owning 49 percent, you would hope it would hold enough sway to get Virgin to make some changes, but it doesn’t have absolute control. I would think we would see more Virgin Atlantic airplanes focused on the US market and less going elsewhere but I suppose we’ll find out.

And then there’s this whole silly business about Virgin Atlantic flying narrowbodies up to Scotland. That is apparently still going to happen and Delta will codeshare on it. This is about Virgin getting extra slots at Heathrow, but this seems like a lot of effort for little gain.

Not a New Delta Strategy
Ultimately, this is just another piece in Delta’s world domination puzzle. It’s one of those really annoying pieces that you can’t find and assume you’ve lost. But then you see someone selling that exact piece on eBay for a pretty good price and you jump on it. This isn’t a new strategy. Delta bought much smaller stakes in both Gol in Brazil and Aeromexico in Mexico to fill holes in Latin America. Delta also set up a joint venture with Virgin Australia to strengthen its offerings down under. When it sees a hole, Delta finds a way to plug it, and SkyTeam isn’t necessarily involved.

London is clearly the biggest hole it has tried to plug, and it’s doing it for a song. For Delta, $360 million is nothing. It’s not even four days worth of revenue. But the risk is that Delta doesn’t have control of Virgin Atlantic. I would hope that it got some real assurances that Virgin Atlantic is going to make changes, but I suppose we’ll see if that actually holds true. After all, Sir Richard does have a rebellious streak in him.

[Original map puzzle photo via Shutterstock]

In the Trenches: How Extra Help Pays Of – Intuit Small Business Blog
I’m loving having more help. It frees me up to focus on things that I’ve been ignoring, like website forms.

Making Sense of New, Outside-Alliance Airline Partnerships – Conde Nast Daily Traveler
A lot of moves have been made lately where airlines in alliances are partnering with rivals outside their alliance.

The worst kept secret in the airline industry was officially announced yesterday when Qatar Airways said it would join the oneworld alliance. This may not be a surprise, but it is going to create some confusion in the Middle East. There are a lot of seemingly conflicting relationships with airlines in this alliance that might make it difficult for travelers to understand exactly who is a partner and how. I wonder if this is a trend that’s going to continue.

Up until now, none of the big three in the Middle East (Emirates, Etihad, and Qatar) had opted to join an alliance. Turkish was probably the closest fast-growing airline in that general region to join an alliance when it picked Star, but the Middle East was still overall an unaligned region with tremendous traffic and growth potential.

Emirates has long been the shining star of the region and it has wanted to remain independent of a global alliance so it could work with any strategic partner it felt would be beneficial. It makes sense for the airline since it had a ton of traffic and many different airlines wanting to tap into that base. That’s why you’ll find Emirates partnering either via frequent flier program or codeshare with South African and Thai in Star Alliance, JAL in oneworld, Korean in SkyTeam, and a bunch of unaligned airlines including JetBlue and Alaska here in the US.

Emirates took its biggest step forward recently, however, when it created a deep partnership with oneworld’s Qantas to connect Australia with Europe better. So Emirates wants strong partnerships but it doesn’t want the cost and handcuffs that come with global alliances. It will just pick and choose.

Europe Benefits
When the Qantas deal was announced, people worried that British Airways would lose its feed into Australia with Qantas and that the alliance was fracturing, but within minutes the rumors of Qatar joining oneworld came to light. That rumor picked up steam despite pointed, bizarre denials from the airline’s chief. Now we don’t have to speculate anymore.

What does Qatar bring to oneworld? Well, it depends on where you live. Qatar’s meager Australia service (just Melbourne) won’t bring anything to Qantas loyalists since they already have an Emirates partnership that will blow it away. And for Americans, there isn’t a ton to be gained either since American already partners with Etihad (for now) to fly beyond Abu Dhabi to that part of the world.

The greatest benefit is for Europeans, and that is why I’m sure IAG (parent of British Airways and Iberia) CEO Willie Walsh was there for the announcement yesterday. This gives British Airways passengers the ability to fly into Abu Dhabi Doha and connect all over Asia and Africa as part of the alliance. I’m curious to hear what longtime oneworld member Royal Jordanian thinks about all this. It may actually strengthen RJ’s position.

The Tangled Web
What is really confusing here is all the overlapping partnerships. We know that the partnership between Emirates and Qantas is strong and not going away, but what about Etihad? This one is very confusing.

As mentioned, American has a partnership with Etihad today. (Etihad also works with a bunch of other airlines around the globe, many in Star.) Etihad now owns nearly 30 percent of Air Berlin, a recent addition to the oneworld alliance. So you would have thought that Etihad might be the one on the fast track to join oneworld. Clearly not. And in what was quite obviously a well-timed release, Etihad announced just a few hours before the Qatar press conference that it had aligned itself with Air France/KLM in a small codeshare deal. That deal also includes Air Berlin. I imagine we’re going to see this grow further and maybe end up including Virgin Australia some day. After all, Etihad owns 10 percent of Virgin Australia.

But is this the end of Air Berlin in oneworld? That is where I’m having trouble seeing the future. The question now is whether we see airlines truly aligning themselves with one alliance or if we see this type of straddling move where airlines can operate outside the lines. After all, Etihad’s boss said that oneworld was “secondary” in the scheme of things for Air Berlin. Could it possibly try to keep that membership while strengthening ties with Air France/KLM and still maintaining partnerships with some Star Alliance airlines?

In that same vein, can Qatar join oneworld and keep its partnerships with Star Alliance members ANA, Asiana, Lufthansa, and US Airways? There has never been a requirement to only partner with airlines in your own alliance, but it seems like it’s been a growing trend to spread your wings beyond alliance boundaries even if alliance partners serve the same purpose. And the alliances want Middle Eastern carriers so badly that they probably wouldn’t be able to make demands to stop this type of partnering anyway.

It seems to me that the only thing that would really stop this type of growth is government concern about antitrust issues. We saw that in Latin America where authorities prohibited newly-combined LAN and TAM from being in separate alliances. I think we should be prepared for this blurring of alliance lines going forward. It’s going to get confusing.

There’s a big press conference scheduled for New York on Monday where oneworld will announce a “significant membership development.” This is such a big deal that I received an invitation to go out to New York and oneworld would even arrange for flights. (I’m not going since I can cover this just as well from home.) The favorite right now is Qatar Airways, but we’ve heard mixed signals from them. What’s your bet?

There was huge news from down under last week when the rumored link between Qantas and Emirates was officially unveiled. This certainly creates some confusion around Qantas’s role in oneworld as the airline backs away from British Airways but it is without question the right move to make.

The Australia to Europe market is one of the most difficult around. There is no aircraft that can fly it nonstop due to the extreme distance. That distance also means that to fly it, you need to dedicate a lot of aircraft time to make it work. The result is that most European airlines have abandoned the market because they can’t generate the revenue to bother. Virgin Atlantic runs a flight via Hong Kong to Sydney but other than that, British Airways is it. (And whether either of them should be in the market is questionable.)

Australia from a BA Point of View
BA has long connected the Empire but it has cut services back dramatically in recent times. Long gone are flights to Perth, Melbourne, and Brisbane. Sydney service was recently scaled back as well. Instead of connecting through several different points in Asia, BA now runs a single flight via Singapore.

Part of the reason for this cut was that, of course, the flights didn’t perform well enough. But BA also felt comfortable knowing that its long-standing revenue-sharing agreement with Qantas on the so-called “Kangaroo Route” provided a great deal of service for those who wanted it. That worked for BA because it freed up a lot of airplanes, but it wasn’t a great deal for Qantas.

The Middle East Puts Qantas in a Pickle
Think about it this way. If you’re Qantas, you can send people to London and connect into the British Airways network. That isn’t really that appealing. Sure, you have better heft and service to London than you can offer on your own, but the connections from there aren’t great since travelers have to backtrack to most places in Europe. Most importantly, your customers have to stop twice; once in Asia and again in London. That may have worked for years, but then the Middle East woke up.

Emirates and others started to tap into the Australian market and promptly kicked Qantas in the butt. See, it’s easy to go nonstop from Dubai to Australia. In fact, for the upcoming southern summer, Emirates flies 19 times a week to Perth, 4 times a week to Adelaide, 21 times a week to Melbourne, 14 times a week to Brisbane, and 21 times a week to Sydney. Some of those go via Southeast Asia, but most are nonstop. And we are talking big aircraft here with a mix 777s and A380s. Emirates then goes beyond those cities into New Zealand and has started to take traffic there as well.

What does it do with all of those Aussies (and Kiwis)? It brings them to Dubai and then gets them with just a single stop to anywhere in Europe and Africa. The idea that you can fly Emirates with one stop from Adelaide to Birmingham in the UK is mind-boggling but it works. Why would you ever fly Qantas and BA if you could go far faster via Dubai?

This isn’t much of a secret. Emirates has made a huge name for itself in Australia over the last few years, but it isn’t just Emirates. Etihad now owns 10 percent of Virgin Australia and wants to do the same thing via Abu Dhabi. But clearly, Emirates and its expansive network is the real prize.

The Details
So what exactly is happening with this deal? Qantas is walking away from its agreement with British Airways and will enter into a new one with Emirates. There won’t be any equity exchanged, but it will be a “benefit sharing” operation with tight integration including coordination of pricing and schedules, or so they say. The details seem a bit fuzzy at this point but it’s not just a run-of-the-mill codeshare. It’s going to be deeper than that.

Qantas will now send daily A380s to Dubai from Melbourne and Sydney. Both those flights will go on to London, but that’s it for Europe. Qantas will axe its Frankfurt flight, as it should have done long ago. Really, I imagine it’s a national pride thing to even keep the London flight. Were I Qantas, I would just turn around in Dubai and let Emirates take people on to London as it’s doing in the rest of Europe. As part of this, Qantas will also end its codeshare with oneworld partner Cathay Pacific and with Air France.

Qantas Focuses on Asia
All these moves make sense for Europe, but they make even better sense for Asia. As Qantas put it, Asia has served a waypoint for Europe services and that meant that the times between Australia and places like Singapore and Hong Kong weren’t optimized for local traffic. The two Qantas flights from Singapore to Sydney, for example, both leave around 8p at night. The northbound trips both leave around 5p in the afternoon. That isn’t great for local traffic to bunch your flights up like that. Now Qantas can (as it should have done long ago) reschedule the flights for local demand.

What does this mean for oneworld? It shouldn’t mean much, to be quite honest. Sure, BA loses a big partner to Australia, but it should be able to route passengers via Hong Kong on oneworld partner Cathay Pacific if it wants to ramp that up. And it still has its own Sydney flights… for now. There are also rumors of Qatar Airways joining oneworld, and that would prove more feed. Besides, it appears that Qantas will remain part of oneworld for now, just a more distant partner in what is now a more fractured alliance. But Qantas will keep strong ties with Japan Air Lines – they have a joint venture for a low cost carrier in Japan – and presumably will keep strong ties to American here in the US. The alliance itself, however, is a bit weakened.

In the end, there is no doubt in my mind that Qantas made the right move here. Others may not like it as much, but that isn’t Qantas’s problem.