(DAL) Delta Air Lines and Virgin to Share Codes

The second largest U.S. airline Delta Air Lines Inc. (DAL) will start codesharing its flights with Virgin Australia on the trans-Pacific route from November.

The move is part of the joint venture between the two airlines that received all necessary approvals in June. Per the deal, Delta will add its code to Virgin Australia flights between Los Angeles and the Australian cities ––Sydney, Melbourne and Brisbane. At the same time, Virgin Australia will add its code to Delta’s services between Los Angeles and Sydney.

The joint venture thus expands trans-Pacific services and entails various benefits, including accrual of frequent flier miles and premium lounge access to customers.

The trans-Pacific codesharing marks the latest expansion in the joint venture. In May, Delta added its code to Virgin Australia flights to five destinations in Australia while Virgin Australia added codes to Delta’s four new cities in the United States. Additionally, both Delta and Virgin would expand its existing domestic codeshare flights further.

The deal affirms Delta Air Lines’ continued effort to expand domestic and international flights. Within the country, the company is expanding its presence in Latin America, especially Mexico and Brazil as well as New York. Internationally, Delta’s deal with a Chinese international airline China Eastern in early June, should prove profitable.

We believe the company’s global network, hub structure and alliances with other airlines will enable it to offer customers an improved global reach compared with its peers such as United Continental Holdings Inc. (UAL), AMR Corporation (AMR) and Southwest Airlines Co. (LUV).

However, rising fuel prices, unionized labor, debt-heavy balance sheet and competition keep us cautious on the stock.

We are currently maintaining our long-term Neutral rating on Delta. The stock retains the Zacks #3 (Hold) Rank for the short term (1–3 months).

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