Delta, Virgin Blue Seek Pact, Anti-Trust Immunity

Delta Air Lines Inc. announced plans for a joint venture with Virgin Blue Holdings in a move that could snatch Australia's second-largest carrier from its existing partnership with United Airlines.

The world's largest airline is also seeking antitrust approval from regulators in the U.S. and Australia for the proposed tie-up, the first time Delta has sought immunity for a deal outside the global SkyTeam alliance it leads.

Delta started its first U.S.-Australia service last week, operating on a Los Angeles to Sydney route that had long been carved up between United, a unit of UAL Corp. (UAUA) and Qantas Airways Ltd.

Virgin Blue also operated the route and last year signed a code-share deal with United; each carrier sold tickets for the other on their respective domestic networks.

United, a member of the Star Alliance, said it was premature to comment on whether it would drop its pact with Virgin Blue.

While code-sharing has become a standard form of industry cooperation, it is unusual for partners to switch so quickly or to seek such deep ties outside of the network of three global alliances that dominate the industry.

Virgin Blue is not a member of any of the global alliances, but plans to expand beyond code-sharing through product planning and combining frequent flyer program benefits with Delta.

Brett Godfrey, chief executive of Virgin Blue, said he had approached Delta six months ago about cooperation, though still has no plans to join any alliance.

He said a comprehensive marketing agreement between the two airlines could be in place within three months and a fuller joint venture would take six months to go through an approval process in the U.S.

Godfrey said he expected a draft ruling from U.S. regulators could come by year-end.

The timescale may be optimistic amid increasing scrutiny of anti-trust exemptions in the airline industry by the U.S. Justice Department.

While the Transportation Department has final jurisdiction over airline applications, DOJ has been critical in recent weeks of the other agency's stance in vetting applications for immunity.

In its filing, Delta said that "the proposed alliance is demonstrably in the public interest because it is pro-consumer and pro-competitive," noting the U.S. has an open skies aviation deal with Australia.

Godfrey said that V Australia, Virgin Blue's long-haul carrier, won't change its plans on capacity despite the arrangements with Delta.

Delta began daily nonstop flights between Los Angeles and Sydney on July 1. V Australia flies to Los Angeles from Sydney daily, flies three times a week between Los Angeles and Brisbane, and will fly three times a week from September between Los Angeles and Melbourne.

Godfrey said the agreement with Delta should allow the four airlines to stay on the route.

-By Lyndal McFarland and Iain McDonald, Dow Jones Newswires; 61-2-8272-4681; [e-mail]