Airline alliances in Latin America provoking major changes. How TAM helps Star
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 |
---|---|
23.5% |
|
12.2% |
|
12.1% |
|
8.0% |
|
6.1% |
|
5.2% |
|
3.5% |
|
Skyservice Airlines |
2.8% |
2.5% |
|
2.2% |
|
1.8% |
|
1.8% |
|
1.7% |
|
1.5% |
|
Lan Airlines |
1.4% |
1.3% |
|
1.3% |
|
Airtran Airways |
1.3% |
1.1% |
|
1.0% |
|
0.9% |
|
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
24.7% |
14.0% |
|
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
oneworld |
Star |
|
---|---|---|
New York |
New York |
New York |
Mexico City |
Mexico City |
|
Los Angeles |
Los Angeles |
|
Orlando |
||
Washington |
||
Washington |
||
South American Destinations |
||
Buenos Aires |
Buenos Aires |
Buenos Aires |
Rio |
Rio |
Rio |
Sao Paulo |
Sao Paulo |
Sao Paulo |
Santiago |
Santiago |
Santiago |
Salvador |
Salvador |
|
Forteleza |
||
Belem |
||
Maricaibo |
||
Santa Cruz |
||
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 |
oneworld |
Star |
|
---|---|---|---|
DL 7 |
|||
UA 7 |
|||
AA 7 |
|||
CO 7 |
|||
Los Angeles |
DL 3 |
||
KE 3 |
|||
Mexico City |
AM 7 |
MX 5 |
|
AA 16 |
JJ 14 |
||
New York |
DL 7 |
AA 7 |
JJ 14 |
JL 2 |
CO 7 |
||
Orlando |
JJ 7 |
||
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
oneworld |
Star |
|
---|---|---|
Milan |
London |
London |
Rome |
||
Milan |
||
South American Destinations |
||
Buenos Aires |
Buenos Aires |
Buenos Aires |
Sao Paulo |
Sao Paulo |
Sao Paulo |
Rio |
Rio |
Rio |
Guyaquil |
Guyaquil |
|
Santiago |
Santiago |
|
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 |
oneworld |
Star |
|
---|---|---|---|
KL 6 |
|||
LH 7 |
|||
JJ 7 |
|||
TP 11 |
|||
London |
BA 7 |
JJ 7 |
|
IB 12 |
JJ 7 |
||
CA 2 |
|||
Milan |
AZ 3 |
JJ 7 |
|
LH 4 |
|||
AF 12 |
JJ 14 |
||
TP 2 |
|||
Rome |
AZ 6 |
||
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.