Delta Making a Move on Virgin Atlantic?

Delta Air Lines seems to be making preliminary moves to buy a big chunk of Virgin Atlantic. The most recent indication of that is that Singapore Airlines, which owns 49 percent of Virgin Atlantic, confirms that it wants to sell that stake.

Here's Reuters on it.

Delta won't comment. Delta, which has expressed interest in Virgin in the past, is the most obvious buyer of the Singapore stake, possibly in a combination bid with Air France-KLM. The controlling share of Virgin -- 51 percent -- is owned by its founder, Richard Branson. Delta acquiring the other 49 percent would give it access to Virgin's slots at all-important Heathrow Airport in London, as a deal in combination with its SkyTeam Alliance partner Air France/KLM would circumvent European laws about foreign control of an EU carrier.

Speculation then says that Delta-AirFrance/KLM could even acquire full control of Virgin, with Delta maintaining that minority 49 percent stake to avoid regulatory hurdles.

Virgin is now the second-largest carrier at Heathrow, an airport that is operating at full capacity with no immediate room for adding new slots. So the only way you get slots there these days is to buy them from someone else, and add them to your alliance bundle, in this case SkyTeam.  As Mike Boyd points out today, "Add all the SkyTeam slots, including the Virgin Atlantic access, and SkyTeam will have 650 slots. A pittance to the BA 4,900, but still enough to be in a strong second place."

In his weekly essay at his usual post at the Boyd Group International site, Mike also suggests that maybe the alliance world isn't as monolithic as has been assumed, and may be starting to flounder as members fight over turf. That's very interesting reading.

Meanwhile, to the extent that anybody in the mainstream media actually covers airlines (other than as a weird stock-play, a fare-oriented consumer-interest story, or a lame rehash about international markets like this one in USA Today), this will be reported with bafflement.

But here's the way I see it if Delta in fact does move on Virgin Atlantic:

The biggest story in airlines today, which goes almost unreported, is the move toward consolidation, not just with mergers and acquisitions, but with rapidly growing deals in which airlines basically get around antitrust regulations and act in deep concert, through alliances, code-shares and those strange little special antitrust-exempt deals that let them flat-out collude on prices and supply on specified international routes. The name for this is "cartel."

A combination would accelerate continue that trend, if regulators let it happen.

 Airlines are interested these days not in market share on domestic routes, but in feeding high-revenue passengers into long-haul hub-to-hub routes with lucrative connections, including in cooperation with code-share and alliance partners, to international routes. That's the game being played by the major domestic airlines (Southwest excepted), to the detriment of comprehensive air-service between U.S. markets that are don't produce high-yield business traffic and international feeds.

Oh, by the way: Is anybody looking at Virgin America (which Branson's company has a minority stake in), the feisty and highly regarded American carrier (only five years old and unable to expand much) -- whose main assets are juicy transcontinental routes with high-yield potential international feed?

You bet they are.

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