Delta continued its efforts to take over the world last week with the announcement of its anticipated joint venture with Canada’s WestJet. For Delta, this is just another piece of the puzzle. It has spend years cobbling together a network of joint ventures and equity stakes to build its empire. And it’s not hard to see where the airline is looking next.
I suppose you could make the argument that Delta’s joint venture strategy now goes back 25 years to, well, the dawn of airline joint ventures. But in reality, that was all Northwest’s doing when it saddled up to KLM and started the trend. With Delta and Northwest merging along with Air France and KLM, that naturally morphed into the joint venture those guys have over the Atlantic today. (I do think it’s important to remember just how forward-thinking Northwest and KLM were back then. Oh, and remember this bad boy?)
This joint venture gave Delta a tremendous presence over the Atlantic. The addition of Alitalia to the mix… helped? (Ok, it was mostly irrelevant and I would expect to see Alitalia leave it soon enough.) But there was one big hole that Delta simply couldn’t fill. London.
Despite its country’s current isolationist tendencies, London still remains the important business hub in Europe (if you can still call it part of Europe), and Delta wanted to be a player. Unless you count the rightfully short-lived Air France attempt to fly London to LA, Delta’s existing partners weren’t going to help. So it went and made new friends. Virgin Atlantic was struggling and Singapore Airlines was looking to offload its stake. Delta picked up 49 percent and basically made Virgin Atlantic do its bidding. Earlier this year, Air France/KLM picked up 31 percent of Virgin Atlantic and Delta took 10 percent of Air France/KLM. So now they form a tight-knit group.
Why not just merge? I’m sure they would if they could. But except in very rare situations, there can’t be cross-border mergers. A tightly-controlled joint venture is the best they can do until governments change their minds.
Europe was obviously in good shape after all these moves, but Delta needed help elsewhere. It found itself looking south toward Latin America.
Delta’s Latin presence was relatively weak, especially compared to American’s. Back in 2011, it saw an opportunity to get a toehold when Brazil’s Gol was floundering. Delta bought 10 percent. (And oh, Air France/KLM owns a piece as well.)
But that wasn’t really going to help cover Latin America, just Brazil. So Delta made a move on something a little closer to home, Aeromexico. In 2012 it bought a small stake but then earlier this year it bought another third of the company. It has the ability to go up to 49 percent if it wants. The airlines entered into a joint venture which now allows Delta to act as the puppet master, as it seems to do with Virgin Atlantic. Heck, Aeromexico may even take C-Series aircraft that Delta has on order while the trade dispute gets worked out.
This gives the airline good coverage in Mexico and Brazil but not much else. There’s more work to be done.
Delta had locked up Australia early when it formed a joint venture with Virgin Australia, but Asia was a different story. Its most obvious partner, Korean, was long in purgatory as the two airlines couldn’t agree to a framework for working together. The best Delta could muster was a 3.5 percent stake in China Eastern in 2015. That’s helpful for building the groundwork for access into China, but with no open skies agreement between the two countries, there is no chance of a joint venture being approved. This was strategic, but it wasn’t something to cover the continent.
Once Richard Anderson left Delta, however, things changed rapidly. Delta gave up on its Narita hub and signed a joint venture with Korean. This gives Delta the ability to flow passengers through Incheon all throughout Asia. In a flash, Delta became far more relevant.
The latest piece in the puzzle, as mentioned, is Canada. Without an equity stake, this won’t look like Aeromexico, but it should allow for much deeper cooperation on transborder routes. As an added bonus, this forced WestJet to kick its other US partner, American, to the curb. WestJet has a lot of irons in the fire right now, so hopefully the airline can give this partnership the attention it deserves. Delta should be able to lend a great deal of expertise in WestJet’s quest to seemingly become a legacy carrier.
Now, the obvious question is.. what’s next on Delta’s world domination tour? Well, the airline certainly gives some clues. Take a look at this doc that the airlines’s corp comm team sent to me.
As you can see this doesn’t have the WestJet joint venture on it just yet, so it’s not completely up to date. What’s most interesting here, however, is that Delta has a lot of codeshare partners… but only a few have made the cut to get on this doc.
Certainly India is a huge area of focus right now. Air France/KLM has recently been making news as it gets closer with Jet Airways. Delta is right there in the mix as well. Jet, of course, is part of that mess they call the Etihad Airways Partners but that won’t stop it from doing what makes sense, hitching its wagon to the Delta/Air France/KLM train. This will be another strategic coup as the airlines get closer together.
The other notable inclusion here is Aerolineas Argentinas. That airline has long been a Skyteam member and partner, but it has also long been a complete and total train wreck. With a new market-oriented government in place in Argentina, however, things have begun to change. Maybe someday Aerolineas Argentinas can actually step up and join the fold, but I remain highly skeptical. That market is still a mess, but as talked about earlier, Delta needs more heft in Latin America.
The only other airline on this map is China Southern. With American having taken a stake in that airline, I assume its days as a Delta partner are likely numbered. But with China Eastern in the mix, that’s not really all that important.
Will This Work?
While I like these strategic joint ventures, I’ve generally not been a fan of equity stakes. Historically, they’ve been disastrous. Anyone remember the Qualiflyer Group? That was Swissair’s grand ambition to buy stakes in every failing airline in Europe. It ended up failing itself. The more recent Etihad Airways Partners has been a dumpster fire in its own right. But this thing with Delta is mostly different.
To start, Delta isn’t investing in failing airlines here, at least not without reasons. Sure Gol was struggling but that was a systemic issue. And Virgin Atlantic was floundering as well, but the assets were incredibly valuable, especially when Delta could align them with its own network. There is real strategic value in each of these airlines, something you can’t say for Etihad’s moves.
If Delta was simply hoping for magic after buying a stake in each airline, that would be a bad move. But look at the work it has done to morph Virgin Atlantic and Aeromexico into extensions of Delta itself. This kind of strategy seems to work well, but not in every case. Delta didn’t need to take a stake in WestJet to find a motivated, like-minded partner. Equity stake or no, in the unlikely event that cross-border mergers end up being allowed, Delta has its route map all planned out.