The SkyTeam Alliance is the latest winner in the resurgent networks of global airline partnerships. Virgin Atlantic Airways, a long-time partner of several SkyTeam members, will join the alliance next year.
The addition of Virgin Atlantic brings the airline’s key London Heathrow hub and numerous transatlantic routes into the SkyTeam network. That will make the alliance a stronger competitor to the likes of Oneworld, which counts Heathrow-based British Airways among its founding members, and even Star Alliance that’s members offer a robust amount of service to the London airport.
“Our membership will allow us to enhance established relationships with our valued partners at Delta and Air France-KLM, as well as opening up opportunities to collaborate with new airlines,” Virgin Atlantic CEO Shai Weiss said. “It will enable a seamless customer experience, with an expanded network and maximized loyalty benefits.”
Beyond the extension of loyalty benefits, however, a greater presence at Heathrow is really the only big get for SkyTeam. Now, Heathrow access is not to be undervalued; slots at the airport are among the most sought after in the airline industry. But Virgin Atlantic’s all long-haul network gives the alliance little in added connectivity from the addition.
In fact, only one of Virgin Atlantic’s 25 destinations in September is not served by another member carrier: Barbados, according to Diio by Cirium schedules. Every other city is served by one, if not more, SkyTeam airlines.
Virgin Atlantic will increase SkyTeam’s share of seats at Heathrow by 6 points to nearly 12 percent in September, Diio schedules show. Star has a 19 percent share, and Oneworld 57 percent. And across the North Atlantic between Europe and North America, SkyTeam gains 5 points of share for 29 percent of industry capacity compared to Oneworld’s 24 percent and Star 37 percent.
Virgin Atlantic’s transatlantic routes already operate under an immunized joint venture with SkyTeam members Air France, Delta Air Lines, and KLM. That means its schedules, fares, and other commercial matters between the UK and U.S. — where it provides the most lift to the alliance — are already coordinated with SkyTeam members. Delta also owns 49 percent of Virgin Atlantic.
The partnership is also the latest affirmation of the global alliance model. Prior to the pandemic, many had begun writing off the multilateral networks of airline partnerships in favor of closer, bilateral ties directly between airlines. For example, when Latam Airlines Group announced in September 2019 that it would leave Oneworld and form a joint venture with Delta, it opted not to join SkyTeam. That prompted much speculation that alliances were a dying breed. But the pandemic changed that paradigm as airlines again leaned heavily on their partners amid deep schedule cuts and fleet reductions.
“What we’ve been saying to our stakeholders in Oneworld is that ‘it’s not that you’re wrong, alliances provide this ecosystem that all these bilateral and trilateral partnerships can exist,’” Oneworld CEO Rob Gurney told Airline Weekly last year when asked of the criticisms of alliances.
Oneworld, despite losing Latam, has made the most gains in recent years. It added Alaska Airlines, and the carrier’s deep network along the U.S. West Coast, to its roster last year, and its first African member, Royal Air Maroc, in 2020. And recent reports indicate that African airline RwandAir is considering Oneworld membership. RwandAir is also partially owned by Oneworld member Qatar Airways.
Virgin Atlantic’s membership in SkyTeam will also give travelers better connectivity across alliance members. Aside from its three joint venture partners, the airline only has codeshares in place with two other alliance members: Aeromexico and Middle East Airlines. Virgin Atlantic has interline agreements with the remaining 13 members, and has the “options,” as it put it, to expand these to closer codeshare agreements, for example with ITA Airways or Korean Air.
IATA Urges Climate Commitments
IATA chief Willie Walsh urged government aviation officials at the International Civil Aviation Organization, or ICAO, session last week to adopt a pledge of carbon neutrality by 2050, something that IATA itself has done. However, he acknowledged that “the cost of transition is going to be difficult for all airlines.”
Sustainable aviation fuel, or SAF, usage will be instrumental toward achieving the net neutrality goal, but availability remains an issue, and one Walsh thinks governments can address with incentives. “We’re buying every single drop of sustainable aviation fuel that we can get our hands on.” The limited SAF available today typically costs 2-5 times more than traditional aviation fuel.
Offering an industry update, Walsh said airlines globally will lose about $10 billion this year, which implies $190 billion in collective losses during the past three years. The U.S. airline industry, though coming off heavy pandemic-era losses, is the exception in that will likely earn a profit this year. That’s mostly because of the large U.S. domestic market, which wasn’t subject to travel restrictions. Asia-Pacific still lags, mostly because severe travel restrictions remain in China.
Overall, though, international demand is following domestic’s lead and likewise recovering quickly now. On the other hand, high fuel prices are still a concern even as crude oil prices have eased with refining, or “crack,” spreads still high. Among the other topics that Walsh addressed were the recent air traffic controller strikes in France, the weak pound’s impact on U.K. airlines, the “total mess” that still exists at Amsterdam Schiphol and Heathrow airports, the relief that inflation provides for servicing industry debt, and the comforting point that amid darkening macroeconomic conditions worldwide levels of employment remain high.
In Other News
- U.S. officials signed off on Delta and Latam‘s planned U.S.-South America joint venture. The carriers, which unsurprisingly welcomed the news, must implement the pact within six months under the terms laid out by the DOT. Delta and Latam have promised at least nine new U.S.-South America routes, and an expanded presence in Miami, the latter’s main U.S. gateway.
- SAS provided new financial targets last week, none of which were all that rosy. The airline, which is reorganizing in U.S. Chapter 11 bankruptcy, does not expect to turn a profit until its 2024 fiscal year, which ends in October 2024. For the 2022 fiscal year that ends this month, SAS anticipates an 8 billion Swedish kroner ($721 million) earnings before interest and taxes loss, and a further 4-5 billion Swedish kroner loss in the 2023 fiscal year. The losses come even as passenger numbers are forecast to recover to 90 percent of pre-pandemic levels by April 2023. The outlook looks worse when compared to that of Scandinavian competitor Norwegian Air, which itself restructured during the pandemic, and which is nearing profitability as travel demand remains strong.
- Shipping giant MSC is forming an air freight division, MSC Air Cargo. The operation is due to launch with four Boeing 777-200 freighters operated by Atlas Air in early 2023. Jannie Davel, currently managing director of commercial at Delta Cargo, will lead MSC’s new venture.
- Australia’s Rex Airlines has completed its purchase of National Jet Express. Rex will use the acquisition to grow in Australia’s lucrative “fly in, fly out” — or FIFO — business that serves primarily resources companies. The airline outlined plans to renew National’s fleet with De Havilland Dash 8-400 aircraft, and expand FIFO operations in Queensland and the Northern Territories.
- In people moves, Southwest named Andrew Watterson, currently its chief commercial officer, as its new chief operating officer from October 1. He replaces Mike Van de Ven who will leave the carrier at the end of the year. Southwest CEO Bob Jordan will add president to his title following Van de Ven’s departure. Ryan Green, the airline’s chief marketing officer, will become chief commercial officer. At Jetstar Airways, Stephanie Tully is the Qantas-owned discounter’s new CEO. Most recently the chief customer officer at Qantas, Tully has worked at the group in a variety of roles since 2004. She replaces current CEO Gareth Evans who leaves Jetstar at the end of the year.