Delta Air Lines Inc. and Air France-KLM signed a deal Wednesday to combine two separate joint venture agreements into one to create a trans-Atlantic powerhouse that's expected to generate $12 billion in annual revenue, provide better travel options for customers and more closely align the carriers' operations without a formal merger.
Passengers get more nonstop flights between major cities in the U.S. and Europe, while competition and the weak global economy will likely mean fares won't be affected too much.
The airlines aren't merging, and no subsidiary will be created, but airline consultant Darryl Jenkins said the equal sharing of revenue and costs regardless of who is flying the plane means the carriers will essentially act as one airline on certain routes.
"This is a very big deal," Jenkins said.
No new routes were announced beyond what the two previous agreements provided for separately.
KLM signed a joint venture agreement with Northwest Airlines in 1997, while Air France and Delta signed a joint venture agreement in 2007. Following Atlanta-based Delta's acquisition of Northwest in October 2008, the carriers decided to work on forming a single joint venture.
The latest announcement comes at a time when many people's finances are shaky and demand for air travel has weakened. In Delta's case, it said in April that it will institute a $50 fee for most passengers to check a second bag on an international flight. The new checked bag fee is for travel beginning July 1. It also has plans to cut international capacity by 10 percent starting in September. And Delta has said it would ground 40 to 50 mainline aircraft and remove 30 regional jets from service.
The joint venture will help Delta and Air France-KLM weather the current economic situation and protect their product offerings, they said. The latest agreement means the airlines will equally share cost and revenues on certain flights regardless of what airline owns or flies the aircraft. That's different than a simple codesharing agreement where one airline bears all of the cost but another airline might get a share of the revenue for booking a customer on a flight.
Also, under the joint venture, sales teams don't have a preference of which airline's flight they book a customer on because the revenue and cost equation is the same whether it's operated by Delta or Air France-KLM, Delta spokeswoman Betsy Talton said. That won't apply for all flights, but will for those agreed upon as part of the joint venture.
What it means for customers is seamless booking and more access to frequent flier upgrades and other redemption opportunities, according to Delta Chief Executive Richard Anderson, who spoke to reporters at a news conference in Paris that was broadcast on the Internet.
For example, a customer in San Francisco wanting to fly to Paris can book a nonstop flight on Delta's Web site. The flight would be operated by Air France. At the airport, the customer would check in with Delta. SkyMiles, Delta's frequent flier program, would be earned for the flight.
The airlines said they will coordinate branding at airports and global advertising.
An executive committee consisting of the carriers' CEOs and a management committee comprising representatives from the carriers will work together on strategy.
Talton said the joint venture is expected to create significant synergies through consolidation of commercial efforts and operational functions. She could not say how much the airlines expect to save. Talton said there are no plans to make changes to employee staffing levels as a result of the initiative.
The joint venture represents approximately 25 percent of total trans-Atlantic capacity.
The cooperation agreement between Europe's largest airline and the world's largest airline operator will mean the carriers will operate more than 200 daily flights and offer about 50,000 seats per day.
The joint venture covers all the airlines' flights between North America and Europe, between Amsterdam and India, and between North America and Tahiti, the companies said. The joint venture can be canceled with a three-year notice after an initial 10-year term.
Alliances between U.S. and foreign carriers are not new.
There's a pending bid by American Airlines and British Airways to cooperate on trans-Atlantic flights without fear of breaking antitrust laws. Regulators are looking at the issue. American and BA have been thwarted twice before in seeking closer ties, but their prospects appear brighter this time because of changes in the airline industry over the past several years.
American and its partners in an alliance called oneworld argue that they should get antitrust immunity because two competing alliances already have it - Star (Lufthansa, United, and beginning this fall, Continental) and SkyTeam (Delta, Air France-KLM).
American also notes that the U.S. and Europe have signed an open-skies treaty, increasing competition at Heathrow, since its last failed effort to work more closely with BA.
The chief of American parent AMR Corp., Gerard Arpey, said Wednesday that American expects regulators to approve antitrust immunity for American to operate a trans-Atlantic business with British Airways and Spain's Iberia that would compete with Delta and Air France-KLM.
"I like our positioning across the North Atlantic, and I think we will be able to compete with them very effectively," he said.
Air France and KLM combined in 2004. But unlike Delta's acquisition of Northwest, the French and Dutch carriers kept separate centers of operations and chief executives. The Air France-KLM deal called for the two carriers to theoretically remain separate, but both would be wholly owned by the Air France-KLM holding company. The new Delta is based in Atlanta, the Northwest name is being phased out and Anderson is chief of the combined carrier. Delta is seeking a single operating certificate from the Federal Aviation Administration.
Air France-KLM shares rose 11.4 percent in Wednesday trading in Paris. Delta shares fell nearly 2 percent in trading in New York.
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AP Airlines Writer David Koenig contributed to this report from Dallas.
