My Account Menu

CAPA Login


Register to trial CAPA Membership!

Airline alliances in Latin America provoking major changes. How TAM helps Star

25-Feb-2010

Despite strong growth in several markets, Latin America’s aviation scene is in flux—perhaps more so than any other geographic region on the globe. Political and economic instability have been rampant across the region and continue to be a part of the 21st century landscape. The latest difficulties have been manifest as political unrest in Venezuela and continuing economic turmoil in Argentina, to name just two.

Additionally, many South American nations still seem more closely tied to Europe and the US than they are to one another. While Brazilians can travel nonstop from Sao Paulo to Orlando, there is no such link to either La Paz or Quito.

The three major airline alliances are now likely to play a role in reshaping even further the nature of access to and across the continent. In addition to these far-flung alliance linkages, there have recently been alterations of the local market as Avianca and TACA have joined forces. The long-term consequences of that association are yet to be seen.

How TAM subtly shifts the balance towards Star

In the near term, the accession of TAM to full membership in Star will alter the current balance of power in a geography where oneworld has had unrivaled dominance since the failure of Varig. This leaves SkyTeam as the only one of the three alliances lacking a member headquartered on the South American continent - a disadvantage amongst travelers who live in Latin America and travel predominantly within the region.

But in terms of access to the market from both Europe and North America, there are some interesting surprises.

North America to Latin America carrier capacity share

Airline

Capacity share

American Airlines

23.5%

Delta Air Lines

12.2%

Continental Airlines

12.1%

US Airways

8.0%

JetBlue Airways Corporation

6.1%

Mexicana De Aviacion

5.2%

Air Canada

3.5%

Skyservice Airlines

2.8%

United Airlines

2.5%

Spirit Airlines

2.2%

Aeromexico

1.8%

Alaska Airlines

1.8%

Westjet

1.7%

Avianca

1.5%

Lan Airlines

1.4%

Taca International Airlines

1.3%

Tam Linhas Aereas

1.3%

Airtran Airways

1.3%

Air Jamaica

1.1%

Caribbean Airlines

1.0%

USA 3000 Airlines

0.9%

Volaris

0.9%

Others

6.2%

American is clearly the dominant north-south link. However, prior to its move to Star, Continental (then SkyTeam) and Delta together almost rivaled American’s share. When Continental joined Star and transfered that capacity to its column, the real winner was oneworld, whose position at the top was unchanged. Star moved up considerably to an impressive second, while the clear loser was  SkyTeam whose share is now only 14%.

Latin America: % of Total Seats

 

Europe

North America

SkyTeam

24.7%

14.0%

oneworld

21.5%

30.1%

Star

17.0%

27.4%

The addition of TAM, still in the process of establishing itself in the international realm, makes a far smaller overall plus for Star, at least for the present. However, Star does gain a partner with extensive service within the region and as well as being a powerful player in the domestic market of the region’s economic powerhouse. And as we shall see, in specific markets its addition is much more important.

Europe presents a somewhat different positioning, with SkyTeam, led by AF/KL taking the lead. Even with the addition of TAM, Star retains its third place, but with the bonus of access to all of Brazil. The European positioning can also be attributed to a smaller Caribbean and Central American presence by Star members. Unlike BA, Iberia, Air France and KLM, the only Star member with strong ties to the region is Portugal's TAP, and those ties are specifically with Brazil.

Oneworld wins the North America linkages

Market shares reveal part of the picture; the rest being shown by the origins and destinations from which the alliance partners operate. The rather large chart displays the cities in North America and Europe from which the partners operate to South American destinations.

Alliance Origins and Destinations: (1) From North America

SkyTeam

oneworld

Star

New York

New York

New York

Atlanta

Chicago

Chicago

Mexico City

Mexico City

Houston

Los Angeles

Los Angeles

Philadelphia

 

Miami

Orlando

 

Washington

Miami

 

San Francisco

Washington

 

Toronto

Charlotte

 

Dallas

Toronto

South American Destinations

Buenos Aires

Buenos Aires

Buenos Aires

Bogota

Bogota

Bogota

Caracas

Caracas

Caracas

Rio

Rio

Rio

Sao Paulo

Sao Paulo

Sao Paulo

Lima

Lima

Lima

Santiago

Santiago

Santiago

Brasilia

Salvador

Salvador

Forteleza

Quito

Quito

Guayaquil

Guayaquil

Belem

Manaus

Cali

Manaus

 

Maricaibo

 
 

La Paz

 
 

Santa Cruz

 
 

Recife

 
 

Belo Horizonte

 
 

Montevideo

 

From North America, oneworld’s strong share comes not from having a great many more origin and destination points, but rather from the multiple hub services provided by the LAN/AA cooperation. Santiago is served from New York, Dallas and Miami with lots of frequencies. Between Miami and Santiago alone, oneworld offers 22 frequencies each week while Delta offers only a single daily flight from Atlanta.

And while the SkyTeam list of destinations looks impressive, almost all flights, as well as those to the Caribbean and Central America, are from Atlanta. It is an extraordinarily centralized flight pattern.

Meanwhile, oneworld has bench strength across a number of hubs, and offers, in many cases, an assortment of flights from New York, Dallas and of course, its powerhouse, Miami.

Star, due to its larger membership, offers a variety of gateways, but the real strength is provided by Continental from Newark and Houston. United and US Airways are only marginal players in South America, though US has a strong Caribbean presence. The addition of TAM brings a significant boost to the alliance’s position and provides extensive feed on both ends.

Overall, oneworld is the North American leader and likely to remain so for the near term.

But...then there's TAM and Sao Paulo - And Star

But by looking at individual markets the picture can be quite different. As for instance…

Brazil dominates the South American continent, both in size and economic power. Sao Paulo is not only it’s biggest city but amongst the world’s largest and is the economic hub of the Brazilian economy. And, according to the nation’s civil aviation regulator, ANAC, air traffic grew by over 17% in 2009. So, as might be expected, it is on virtually every airline’s list of “need to go” places. It is no accident that Emirates chose SAO as its first destination in the region, giving further credence to its role as a pivotal point.

So next we look at the alliances and their nonstop service to Sao Paulo from their various hubs. It is a revealing exercise and further reinforces the value that TAM will bring to Star in this critical market.

Alliance Capacity to Sao Paulo: (1) From North America (weekly flights)

SAO to

SkyTeam

oneworld

Star

Atlanta

DL 7

   

Chicago

   

UA 7

Dallas

 

AA 7

 

Houston

   

CO 7

Los Angeles

DL 3

   
 

KE 3

   

Mexico City

AM 7

MX 5

 

Miami

 

AA 16

JJ 14

       

New York

DL 7

AA 7

JJ 14

   

JL 2

CO 7

Orlando

   

JJ 7

Toronto

   

AC 7

Washington

   

UA 7

Total

27

37

70

Looking first at the north/south traffic from North America to Brazil’s hub, Star, helped mightily by TAM, has almost double the flights vis-à-vis the next grouping, oneworld. The addition of TAM gives Star a parity with American at Miami. Plus they bring two additional gateway cities as well as services from both of New York’s international airports. Also evident is American’s singular hold on the market, supplying 30 weekly flights from three gateway cities.

And Star's dominance to Europe is massive

But the real shift in power is evident when looking at Europe, where Star has roughly 260% more flights from 11 gateway cities, far surpassing both of its competitors. Additionally, Turkish operates 3 weekly services from Istanbul (via Dakar), the two Air China flights to Madrid continue to Beijing, and there is a daily South African nonstop to Johannesburg.

Alliance Origins and Destinations: (2) From Europe

SkyTeam

oneworld

Star

Milan

London

London

Amsterdam

Madrid

Madrid

Paris

Frankfurt

Paris

Rome

 

Frankfurt

   

Munich

   

Lisbon

   

Milan

   

Porto

South American Destinations

Buenos Aires

Buenos Aires

Buenos Aires

Sao Paulo

Sao Paulo

Sao Paulo

Rio

Rio

Rio

Caracas

Caracas

Caracas

Guyaquil

Guyaquil

Belo Horizonte

Lima

Lima

Brasilia

Bogota

Bogota

Fortaleza

Quito

Quito

Natal

Santiago

Santiago

Recife

 

Montevideo

Salvador

In contrast, oneworld’s extended network is limited to the now twice-weekly JAL flight that continues from New York to Tokyo and SkyTeam’s Korean that flies onwards from LAX to Incheon.

Alliance Capacity to Sao Paulo: (2) From Europe (weekly flights)

SAO to

SkyTeam

oneworld

Star

Amsterdam

KL 6

   

Frankfurt

   

LH 7

     

JJ 7

Lisbon

   

TP 11

London

 

BA 7

JJ 7

Madrid

 

IB 12

JJ 7

     

CA 2

Milan

AZ 3

 

JJ 7

Munich

   

LH 4

Paris

AF 12

 

JJ 14

Porto

   

TP 2

Rome

AZ 6

   

Zurich

   

LX 7

Total

29

19

75

Star’s position is clearly one of global reach, and that will only be reinforced by the South American network that is supplied by TAM on arrival in Brazil. At present, Air France has a codeshare agreement with TAM that provides feed and defeed on both ends. It would be surprising if that continues once TAM is fully in the Star camp.

Outlook: Battle for dominance has many more engagements

Although Star dominates the Europe-South America market and oneworld has the edge to North America, there are still significant airline partners yet to be wooed by the alliance groupings. Avianca/TACA is certainly an important player. (See related report: Can Avianca set the Synergies flowing?).  But COPA, while still on the sidelines, will most likely eventually follow its mentor, Continental, into the Star fold, further entrenching that dominance.

New airlines will almost certainly proliferate over coming years; already the low cost contingent is growing and expanding its reach, with both JetBlue and Spirit already offering services to Central and South America. Given a large population with limited resources, the low cost model likely has great appeal in the market. Consequently the battle for dominance has many more likely engagements. Low cost airlines have not figured prominently in global alliances. That could be another feature that the always interesting Latin American market introduces, as oneworld and SkyTeam seek to redress the imbalance.


Want more analysis like this? CAPA Membership gives you access to all news and analysis on the site, along with access to many areas of our comprehensive databases and toolsets.
Find out more and take a free trial.