Air France-KLM and Virgin Atlantic: culture clash?

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Air France-KLM pulled a surprise move, announcing plans to acquire 31% of UK long-haul carrier Virgin Atlantic, but how will the partnership play out in terms of culture and strategy?

From a strategic standpoint, the acquisition joins up a few SkyTeam alliance dots. Air France-KLM has a strong relationship with US major Delta Air Lines, which in turn has a maximum 49% stake in Virgin Atlantic. Meanwhile, SkyTeam members Delta and China Eastern are each buying 10% of Air France-KLM.

There are definite gains to be had on both sides of the Channel. Virgin will finally get the short-haul feed it has been craving for years, since its failed attempts to buy UK short-haul carrier bmi. Meanwhile, Air France gets a solid London foothold to add to its Paris and Amsterdam hubs.

But do equity partnerships truly work? The Qualiflyer Group tried this strategy. It failed. Air Afrique also tried it and failed.

Another equity investment story is playing out at Etihad Group, which has just offloaded its stake in Swiss regional Darwin Airline (flying as Etihad Regional). Meanwhile, two other investments – Alitalia and airberlin – continue to bleed cash, contributing to Etihad’s $1.87 billion net loss for 2016.

Lufthansa Group and International Airlines Group’s portfolio of airline brands seem to be better examples of industry consolidation, but these are typically full-control ventures.

How much strategic benefit do smaller – but significant - equity stakes truly bring, compared with non-equity joint ventures?

Also, how will this fit with the UK’s plans to exit the European Union (Brexit), if UK carrier Virgin Atlantic has 79% foreign ownership (49% Delta and 30% Air France-KLM)?

Then there’s the problem of cultural fit. Air France-KLM and Virgin’s cultures are very different. Air France trades on its lengthy history, exuding a certain elegance and grace. KLM is more in line with Virgin, with an edgy, modern and slightly rebellious personality.

But here’s the rub. Air France and KLM joined forces in 2004 and - despite 13 years together - the two companies are still batting a serious cultural divide. How well will Air France mesh with Virgin?

Victoria Moores victoria.moores@penton.com

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