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Aviation: Is Air France-KLM-Virgin after Flybe's slots?

Are we beginning to see the real reason for Virgin's investment in Flybe start to emerge?

Yesterday, Virgin Atlantic announced that it will be applying its VS flight code to most Air France and KLM flights between the UK and Europe, as well as to the French and Dutch carriers' routes to the North America. The VS code will also be applied to Delta Air Lines services between the UK and the USA. Code shares enable airlines to sell connecting trips on more than one carrier in a single transaction, simplifying ticket purchase and baggage transfers. They also align frequent flyer programs, allowing customers to chose which program they earn miles with.

Increasing cooperation between Virgin, Delta and Air France-KLM comes as no surprise given Delta already owns 49% of Virgin Atlantic and Air France-KLM is close to acquiring 31% stake. It makes sense for the four airlines to channel customers through their hubs at Heathrow, Amsterdam Schiphol and Paris Charles de Gaulle. Doing so widens their networks and means loyal travellers have less need to consider the competition.

Amsterdam Schiphol and Paris Charles de Gaulle are becoming increasingly congested. Does Air France-KLM, Delta and Virgin plan to use Flybe's slots to expand their own networks? (Pieter van Marion)

What about Flybe?

A notable omission from yesterday's codeshare announcement was the former Flybe network. The UK-based regional airline has recently been bought by Connect Airways - a consortium of Virgin Atlantic, Stobart Aviation and Cyrus Capital - and will operate under the Virgin brand in future. What remains of Flybe will undoubtedly provide feeder traffic into Virgin's transatlantic services from London Heathrow, Manchester, Glasgow and Belfast.

But Flybe also operates a number of routes from the UK regions to Paris and Amsterdam in competition with Air France and KLM. It may be too soon to include these in the Virgin - Air France-KLM codeshare, but it is also unlikely that Virgin will want to compete with its owners on services such as Birmingham and Manchester to Paris Charles de Gaulle or Amsterdam. Furthermore, both Amsterdam Schiphol and Paris Charles de Gaulle are slot constrained and adding additional services at peak times is extremely difficult if not impossible.

It is therefore not beyond reason to suspect that Virgin will gradually wind down the former Flybe services that compete with Air France-KLM, leaving its parents to replace the capacity by deploying larger aircraft on fewer services. Alternatively, the group could transfer these services to FlyBe in the future, freeing up Air France-KLM resources for other routes. Doing so would also have the advantage of releasing slots that the group might be able to reassign and reuse for more lucrative long-range services.

Last week Air France sold a pair of Heathrow slots (one daily arrival and departure) to Virgin Atlantic, which subsequently leased them to Flybe for an additional London-Edinburgh service. The transaction reflects declining demand for Paris-London flights and it is possible that Flybe is 'slot sitting' until Virgin can use them for long-haul. But it also points to a willingness within Air France-KLM and Virgin to trade Heathrow slots across the group, and this may well be extended to Delta Air Lines and to Amsterdam and Paris airports in due course.

Text © The Aviation Oracle

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