Air France KLM Group and Delta Air Lines in Joint Venture

The Air France KLM Group and Delta Air Lines have entered into a new long-term joint venture whereby the partners will jointly operate their trans-Atlantic business by coordinating operations and sharing revenues and costs of their trans-Atlantic route network.

The airlines will cooperate on routes between North America and Africa, the Middle East and India, as well as on flights between Europe and several countries in Latin America.

The joint venture represents approximately 25% of total trans-Atlantic capacity with annual revenues estimated at more than US$12 billion (approximately 9.3 billion euros, reference year 2008/09).

The vast network, offering over 200 flights and approximately 50,000 seats daily, is structured around six main hubs: Amsterdam, Atlanta, Detroit, Minneapolis, New York-JFK and Paris-CDG, together with Cincinnati, Lyon, Memphis and Salt Lake City.

Going forward, this structure will represent a major strength for the SkyTeam alliance, of which all three airlines are members.

“The structure of this joint venture, in which we operate as a single business where we consensually develop our strategies and share revenues and costs, provides the incentives for us to collaborate in a way that generates benefits for customers, shareholders and employees of our three airlines,” said Richard Anderson, CEO of Delta Air Lines. “Customers will benefit from the unique scope and choices we will offer, while shareholders and employees will benefit from the stronger competitive and financial position of our respective airlines.”

Air France and KLM have been working with their respective American partners for many years. KLM signed a joint venture agreement with Northwest in 1997, while Air France and Delta signed a joint venture agreement in 2007. Following the merger of Delta and Northwest, the next logical business strategy was to establish a single trans-Atlantic joint venture. The agreement signed on Wednesday is the result of that collaboration.

Included in the JV figures are results from trans-Atlantic services under the flight codes of all three airlines (AF, KL and DL codes), as well as the contribution from connecting flights beyond the hubs.

The joint venture’s geographic scope includes all flights between North America and Europe, between Amsterdam and India, and between North America and Tahiti. On these routes, the business will be jointly operated with the strategy and economics equally shared among the Air France KLM Group and Delta.

Wherever traffic rights permit, and notably between the United States and the European Union, flights will be mutually code-hared.

The joint venture will also step up the visibility of all three airlines in more than 400 airports: the Air France, KLM and Delta brands will be combined at all North American and European airports wherever any of the three carriers operates. Moreover, each partner will also support the three brands in advertising and marketing.

Governance of the joint venture will be equally shared between the Air France KLM Group and Delta. An executive committee comprising the three CEOs and a management committee comprising representatives from Marketing, Network, Sales, Alliances, Finance and Operations will define strategy.

Ten working groups will be responsible for implementing and managing the agreement in the sectors of network, revenue management, sales, product, frequent flyer, advertising/brand, cargo, operations, IT and finance. The joint venture will not however lead to the creation of a subsidiary.

The venture is a long-term, evergreen arrangement that can only be cancelled with a three year notice, after an initial term of 10 years.

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