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Air France – KLM has announced that it will be buying 31% of Virgin Atlantic from Sir Richard Branson’s Virgin Group.  The price paid will be £220 million.

This indirectly values Virgin Atlantic at £710 million, a far cry from IAG’s – the owner of British Airways, Iberia and Vueling – market capitalisation of £12.5 billion…

After the transaction is completed, Virgin Atlantic will therefore be owned:

• 49% by Delta Airlines
• 31% by Air France – KLM
• 20% by Virgin Group

Sir Richard Branson announced the sale in an open letter to employees. You can read it by clicking here.

For what it’s worth, Delta are also paying 375 million euros (approx. £335 million) to buy 10% of Air France – KLM. So indirectly Delta are paying Air France – KLM to take part of Virgin Atlantic off Sir Richard’s hands.

What Does This Deal Mean for Frequent Flyers and Miles Collectors?

Well, in the short term nothing will change. Virgin Atlantic and Delta Airlines will be extending their transatlantic alliance in 2019 to include Air France, KLM and Alitalia. Presumably this will involve revenue sharing and closer coordination of schedules and pricing. We might also see some code-sharing for flights between London and Amsterdam, Paris, Rome, etc. Many travelers will already be familiar with this concept as British Airways, Iberia, Finnair and American Airlines operate a similar joint venture for transatlantic travel.

In the medium term, it’s quite likely that Virgin Atlantic will take the final step and abandon its independent status and join all of these airline partners in the SkyTeam alliance. At the very least, the parties have announced that the venture will eventually offer “reciprocal frequent flyer benefits, including the ability to earn and redeem miles across all carriers.”

Despite the optimistic press releases, it seems clear to me that Virgin Atlantic is struggling badly and Sir Richard decided to sell before it was too late. Having abandoned several UK and international routes to focus on North America, the likes of Norwegian Air have come along to intensify competition on precisely those same point-to-point routes.

I’m also curious how Brexit will impact this transaction. I believe that EU-based airlines must be owned 51% by EU shareholders. British shareholders selling to the French makes little difference today, but in 2 years time will Virgin Atlantic be allowed to operate as a 20% British airline, or is Delta Airlines expecting to be allowed to buy all of Virgin Atlantic post-Brexit?

What do you think of this deal? Will it impact on your travel hacking?