Air France-KLM and Delta to share Atlantic

By Tim Hepher

PARIS (Reuters) - Air France-KLM <AIRF.PA> and Delta finalised a deal on Wednesday to operate as one airline over the North Atlantic, seeking to boost their 25 percent share of the world's busiest market as the industry scrambles for savings.

The profit-sharing venture between the two largest airlines on each side of the ocean had been expected for months but underpinned a strong rally in Air France-KLM shares after it unveiled narrower than expected full-year losses.

In afternoon trading, shares in Europe's largest airline by revenue were up more than 10 percent at 11.19 euros after touching their highest intraday level since November.

The pact between Delta <DAL.N>, the world's largest airline by passenger traffic, and Air France-KLM has won anti-trust clearance in the United States and involves sharing revenues and costs on 200 trans-atlantic flights and some 50,000 seats a day.

It was inspired by the first trans-atlantic co-operation pact between Dutch KLM and Northwest Airlines in 1997 and a similar pact between Air France and Delta 10 years later -- but goes further than either in sharing prices and capacity planning.

Air France and KLM merged in 2004 and Delta bought Northwest last year, paving the way for a four-way partnership.

The deal affect routes worth a combined $12 billion (7.7 billion pounds) in revenues, split evenly between the two carriers.

Air France-KLM Chief Executive Pierre-Henri Gourgeon said he had "no anxieties" about the possibility of the European Union blocking the deal, which is retroactive to April 1.

The airlines said the new partnership would increase choice for passengers by opening up connections between virtually any two points in Europe and the United States and denied it would mean higher ticket prices on the most competitive routes.

"As in the past 10 years there will be pressure for travel to get cheaper and as are able to realise cost synergies we will be able to give these give these back to consumers," KLM Chief Executive Peter Hartman told reporters.

The airlines expected synergies of $150 million each.

THREE ALLIANCES

The deal is part of a trio of grand alliances taking place in a new Battle of the Atlantic between global carriers.

British Airways <BAY.L>, American Airlines <AMR.N> and Iberia <IBLA.MC> are seeking approval to co-operate on those routes with a decision due by October. Continental <CAL.N> aims to join an existing alliance between United Airlines <UAUA.O> and Germany's Lufthansa <LHAG.DE>.

United pilots want to block that deal over job fears.

Delta Chief Executive Richard Anderson sought to reassure his own 80,000 staff over the Air France-KLM tie-up.

"Our employees will benefit because being part of a strong vibrant airline is ultimately good for them," he said.

Virgin Atlantic, whose owner Richard Branson has branded the AA-BA plans a "monster" monopoly, cautiously backed Delta.

"There is good consolidation and bad consolidation, and this could be good consolidation. Whereas BA and American are already the two biggest trans-atlantic carriers, Air France and Delta do not overlap on anything like the same scale," a spokesman said.

After beating its own latest profit warning for the year to March 31, Air France-KLM pointed to signs that the economy is stabilising but said there was no evidence yet of a recovery.

It reported a 2008/09 operating loss of 129 million euros (113.6 million pounds) compared with its March forecast of 200 million.

"The results were better than expected due to costs and their comments about signs of stabilisation in both cargo and passenger," said aviation analyst Stephen Furlong at Dublin-based brokerage Davy.

Air France-KLM said it had shed 2,700 posts in 2008/09 without resorting to compulsory sackings and predicted 3,000 more positions would go in the current financial year.

The results came ahead of full-year operating losses expected to be posted by British Airways <BAY.L> on Friday.

(Additional reporting by Blaise Robinson; Editing by Simon Jessop and David Holmes)

Article Published: 20/05/2009