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VOL. 124 | NO. 99 | Thursday, May 21, 2009

Air France-KLM, Delta to Reap $12B a Year

By GREG KELLER | AP Business Writer

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JOINED FORCES: In this June 2005 photo, a pilot in a Delta Airlines jet sits in the cockpit after parking at Sea-Tac International Airport in Seattle. Delta Airlines Inc., Air France and KLM have signed a deal to combine two separate joint venture agreements to create a more integrated trans-Atlantic powerhouse they say will generate $12 billion in annual revenue. -- AP FILE PHOTO/TED S. WARREN

Delta Air Lines Inc., Air France and KLM signed a deal Wednesday to combine two separate joint venture agreements to create a more integrated trans-Atlantic powerhouse they said will generate $12 billion in annual revenue and provide better travel options for customers.

The Delta-Air France-KLM joint venture is structured around six main hubs: Amsterdam, Atlanta, Detroit, Minneapolis, New York-JFK and Paris-CDG, together with Cincinnati; Lyon, France; Memphis and Salt Lake City.

Passengers get more nonstop flights between major cities in the U.S. and Europe, while competition and the weak global economy likely will mean fares won’t be affected too much.

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 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 share costs 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 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 on 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, said Delta Chief Executive Richard Anderson.

For example, a customer in San Francisco who wants 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.

Air France-KLM Group and Delta also will share governance of the joint venture. An executive committee consisting of the three CEOs and a management committee comprising representatives from the three carriers will work together on strategy.

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 will not lead to the creation of a subsidiary, airline officals said at a news conference in Paris that was broadcast on the Internet.

Alliances between U.S. and foreign carriers are not new.

A bid is pending 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 London’s Heathrow Airport, since its last failed effort to work more closely with BA.

The joint venture has no definite end date, but can be canceled with a three-year notice after an initial 10-year term, the companies said.

Air France-KLM shares rose as high as 13 percent in early Wednesday trading on the Paris stock exchange after annual earnings results late Tuesday showed progress on cost-cutting. They showed that lower staff costs and marketing expenses helped the airline achieve a smaller-than-expected operating loss.

The airline also announced plans to cut its work force and reduce its investment plans.

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.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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