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Delta Buys 49% Stake in Virgin Atlantic

In a long-speculated move, Delta bought the 49 percent interest in Virgin Atlantic previously held by Singapore. This move is a win-win for both buyer and seller: Delta will gain a strong degree of control over Virgin's coveted slots at London Heathrow Airport, while Singapore will get rid of an under-performing investment.

The big question for most of us is, of course, how will this impact travelers?

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This deal is an affair, not a marriage. U.K. laws preclude an outright merger. Virgin Atlantic will retain its name, and Sir Richard Branson will still have a big hand in running it. But you can bet Delta will have a lot to say.

It will be a long-lasting and intimate affair. Delta and Virgin will seek—and probably get—anti-trust approval to coordinate schedules, fares, and such, much as in the current arrangement between American and British Airways. The deal will be the closest arrangement possible without an outright merger, including extensive codesharing throughout both systems and reciprocal frequent-flyer programs.

The big prize here is Heathrow. London is by far the most important transatlantic destination for U.S. travelers. High-paying business travelers prefer Heathrow to London's other airports, Heathrow's capacity is capped at a certain number of landing and takeoff slots, and Virgin has more than 10 times as many slots as Delta now has. Virgin is warehousing some of those slots with short-haul trips within the U.K., but they're available to expand transatlantic service when needed.

For Delta, the biggest boost will be more Delta-controlled flights from New York/JFK, where Virgin is strong in terms of flights to London and Delta is building up a strong pattern of connections from within North America. The move will also give a competitive boost to the Skyteam Alliance.

United and Star Alliance will face much more competition on several London routes. The British government, however, may decide to require that Virgin spin off some of its slots to United as a condition of the anti-trust agreement.

Delta's biggest challenge will be to engineer a financial turnaround for Virgin Atlantic. Although highly praised for service and their "Branson flair," both Virgin Atlantic and Virgin America are losing money.

The deal is unlikely to impact fares or service any time soon. As noted, the airlines will continue to operate separately. Delta may have Virgin switch a flight or two from one of its less-important U.S. destinations to Salt Lake City, Delta's most important hub that currently lacks a London nonstop.

All in all, this is bigger news for the industry than it is for consumers. But at a minimum, Delta flyers will have more through-service and frequent-flyer options to London thanks to this deal.

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