Will Delta Soar on This New Deal?
Singapore Airlines is preparing to sell its 49 percent stake in the British carrier Virgin Atlantic. As Reuters reported on Monday, sources have said that Delta Air Lines (NYSE:DAL) may be interested in the deal as it will give the carrier more landing slots at London’s busy Heathrow Airport.
Why Would Delta Want More Slots at Heathrow?
“Airlines like Delta have long hoped to break into London’s capacity-constrained Heathrow airport, a lucrative hub for corporate passengers where landing slots are generally hard to acquire,” Reuters said. “Virgin Atlantic is the second-largest carrier at Heathrow after IAG’s British Airways.”
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Delta’s interest in the stake is also part of a larger trend. A series of mergers, including United Airlines’ (NYSE:UAL) acquisition of Continental last year, have begun to reconfigure the airline industry. According to The New York Times, airlines have looked to consolidation as a means to restore profitability as oil prices remain high and the economic outlook stays uncertain.
For Virgin Atlantic, the deal would give it a competitive edge against its financially stronger rivals. The airline does not belong to any of the three major alliances, Star, American Airlines’ Oneworld, or Delta’s Sky Team. The acquisition by Delta would incorporate Virgin into its partnership with Air France KLM, and therefore help the airline coordinate flights and cut costs. The alliance would also help alleviate Virgin Atlantic’s tough financial condition. In the year ended in February, the company reported a loss of 80 million pounds, or $128 million.
While Virgin Group has shown an interest in the Delta deal, its founder Richard Branson has said the company will keep its 51 percent stake in Virgin Atlantic.
CHEAT SHEET Analysis: Could this Deal Be a Positive Catalyst for Delta’s Stock?
One of the core components of our CHEAT SHEET Investing Framework focuses on catalysts that will move a company’s stock. With the global economic conditions and fuel prices depressing airline profits, the deal would make both airlines more competitive. For Delta, a stake in Virgin would increase and improve its capacity to provide services abroad. In turn, the deal would give Virgin an international partner and better access to routes in the United States.