Air France, Delta lead charge on Heathrow

A Delta airlines Boeing 767 jet airplane takes off from Frankfurt airport, March 14, 2007. Air France-KLM and Delta Air Lines announced plans on Wednesday to team up on routes linking major U.S. cities and London's Heathrow airport in a challenge to rival British Airways.

PARIS (Reuters) - Air France expects combined annual revenues of $8 billion from a joint venture it announced with Delta Air Lines on Wednesday, in the biggest shake-up in the transatlantic market in years.

They plan to share routes linking major U.S. cities and Europe starting with London's Heathrow in a challenge to British Airways Plc and Richard Branson's Virgin Atlantic Airways -- which immediately promised to defend itself.

"We will fight tooth and nail to ensure we can remain the number two carrier at Heathrow," Virgin Atlantic Chief Executive Steve Ridgway said at the launch of a new Heathrow check-in.

The Air France and Delta venture is the biggest deal yet to follow a transatlantic Open Skies pact reached by the United States and the European Union and set to take effect next March.

Other airlines are also expected to jockey for position at Heathrow, Europe's busiest airport.

For decades, U.S. access to Heathrow has been limited to two U.S. and two UK airlines -- currently American and United, along with BA and Virgin Atlantic.

By forming a joint venture, Air France and Delta will be able to share costs and revenues on transatlantic routes.

KLM, the Dutch arm of the Air France group, formed a similar deal a decade ago with Northwest Airlines and the new joint venture hopes to eventually include cooperation with those two carriers as well as Continental Airlines.

Air France and Delta said the first stage of the venture would cover all transatlantic flights between the Air France and Delta hub airports, as well as all flights operated by either carrier between Heathrow and the United States.

Air France will add a new Heathrow-Los Angeles flight and other routes from the London airport will include two to New York JFK and one to Atlanta operated by Delta.

Air France will give up four of its 12 Heathrow slots now being used for flights to and from Paris to make way for the new transatlantic flights.

It may redeploy a fifth Heathrow slot as it faces competition from the Eurostar train service which is about to start using a new high-speed line in Britain, executives said.

"The revenue encompassed by the first phase of this joint venture is estimated at approximately $1.5 billion per year, and more than $8 billion per year for the second phase," the airlines announced.

SECOND PHASE

Business travelers crossing the North Atlantic are a lucrative market and BA's biggest source of profits. The British airline said on Tuesday it was "not afraid of new competition".

The Air France-Delta joint venture plans a second phase of expansion in 2010 to add "numerous" flights to all destinations between Europe, the Mediterranean and North America.

Delta expects the deal to boost its pre-tax profit by $125 million to $200 million a year from 2011, Chief Executive Richard Anderson told a news conference in Paris.

Air France Chief Executive Jean-Cyril Spinetta said the deal would boost Air France KLM profits by "several tens of millions of euros", echoing remarks he made at an investors meeting on Monday, according to analysts who attended the event.

Analysts have suggested that under Open Skies Air France might look to tap the lucrative northern Italy business market by offering flights to the United States, but Spinetta denied this.

Italy's struggling Alitalia last month placed Air France KLM on a short list of airlines with which it would like to discuss a merger.

Spinetta said he expected talks on the matter to begin in coming weeks while repeating that Air France KLM was also evaluating Spain's Iberia.

(Additional reporting by Pete Harrison)