Wednesday, February 13, 2019

Cargo Options to See Enhanced Scope Says New Triumvirate Which Controls Virgin Atlantic

Freight and Passenger Outfit Deal Gets Approval from European Commission
Shipping News Feature
EUROPE – The European Commission (EC) has approved, under the EU Merger Regulation, the proposed acquisition of joint control over Virgin Atlantic by the triumvirate of Air France-KLM, Delta and the Virgin Group. The Commission concluded the transaction would raise no competition concerns in the European Economic Area. The companies say the deal will give better options to both passengers and cargo customers on the transatlantic routes.

The three airlines signed an agreement last year which sets out the governance as well as the commercial and operational terms of the expanded trans-Atlantic Joint Venture. Upon completion, Air France-KLM will acquire a 31% stake in Virgin Atlantic currently held by Virgin Group for £220 million. Virgin Group will retain a 20% stake and Chairmanship of Virgin Atlantic. Delta will retain its 49% stake.

The Commission investigated the impact of the transaction on the market for air transport of passengers, cargo air transport services, and maintenance, repair and overhaul services.

As regards the air transport of passengers, the transaction gives rise to overlaps on direct/indirect flights (i.e. one of the companies provides a direct flight from one city to another, while the other provides a one-stop flight for the same route) and indirect/indirect flights (i.e. the companies provide one-stop flights between two cities). These relate to routes from the UK to North America, Africa, Asia and the Caribbean, and from Continental Europe/Ireland to North America.

The Commission also investigated whether the companies' combined slot holdings at airports where their portfolios overlap, would prevent competitors from entering or expanding their presence at these airports (namely London Heathrow and Manchester). Control over a large portfolio of slots at congested airports could result in higher barriers to entry for airlines wanting to operate at these airports, which in turn could result in higher fares for passengers.

The Commission's investigation found that:

  • None of the overlapping routes raises competition concerns despite a small number of routes with high combined market shares, because (a) the overlapping routes are direct/indirect overlaps; (b) Virgin Atlantic, Delta and Air France-KLM are not close competitors and they continue to face significant competition from other carriers on the routes where the activities of both airlines overlap.
  • The increase in their combined slot portfolio is unlikely to have a negative effect on passengers at London Heathrow and Manchester airports.
As regards the cargo air transport markets, the transaction is unlikely to raise competition concerns notably because Air France-KLM, Delta and Virgin Atlantic are not close competitors and continue to face strong competition on the affected cargo routes (e.g. from Lufthansa or Cargolux).

Finally, as regards maintenance, repair and overhaul services, the transaction does not raise any competition concerns because of its limited impact on these market. The Commission therefore concluded that the proposed transaction would raise no competition concerns in any of the relevant markets and cleared the case unconditionally. The Commission had previously approved the acquisition of joint control of Virgin Atlantic by Delta and Virgin Group in June 2013.

The decision approves the acquisition of joint control by Air France-KLM, Delta Air Lines, and Virgin Group over Virgin Atlantic Limited by way of purchase of shares. At the same time, Air France-KLM, Delta and Virgin Group say they intend to enhance the scope of their existing cooperation in the provision of air transport services for both passengers and cargo by combining and expanding two pre-existing ‘metal neutral’ joint venture arrangements between Delta and Air France-KLM, and between Delta and Virgin Atlantic. These are cooperative arrangements in which they jointly plan and manage capacity, pricing, and inter-airline financial settlements, with all participating airlines sharing profits equally.