Posted Monday, Dec. 3, 2012, at 9:46 AM
Photo by Joe Raedle/Getty Images.
London's Heathrow Airport is one of the world's main hubs, and it's an especially frequent destination for travelers to the United States. Delta doesn't have many landing slots there, and neither do its European partners in the SkyTeam. And that's what's driving Delta's interest in purchasing Singapore Airlines' share of Virgin Atlantic.
Virgin Atlantic, you see, is 49 percent owned by Singapore Airlines and 51 percent owned by Richard Branson. And Virgin Atlantic obviously has plenty of slots at Heathrow.
Now the clever angle here is that there's a reason Singapore Airlines only owns a 49 percent stake in the airline, namely that European Union rules prohibit a non-EU firm from owning a majority stake in a European airline. But there's a bigger angle here. Branson has indicated that he's also willing to sell some of his shares. So if Delta buys up Singapore Airlines' 49 percent and then Air France-KLM buys even a small slice of Branson's stake, then Virgin Atlantic becomes a SkyTeam airline that's in practical terms under Delta's control. And that means Virgin Atlantic's ample slots at Heathrow can be used for code-share flights to Delta's hubs in Atlanta, New York, Minneapolis, and Salt Lake City.
Pretty clever stuff.
Now of course the downside to investing in Virgin Atlantic is that it's an airline, and airlines as a rule lose money. But insofar as Delta is stuck in the aviation business, it seems like a pretty savvy move. And if you're going to be the CEO of an airline, you can probably pay yourself more as the CEO of a really big airline, so the incentives to consolidation and expansion are large.