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Latin American airline consolidation intensifies

23-Nov-2010

After decades of existing as a footnote in global commercial aviation, the airlines of Latin America are making big waves and consolidating at unprecedented rates.

According to press releases from LAN, the multinational Chilean carrier has agreed to acquire 98.942% of the shares of Colombia’s AIRES for a projected price of USD32.5 million.

Pending due diligence, the Colombian acquisition could be finalised in 30 to 60 days. At that time AIRES would become a LAN affiliate, adding yet another national base to the growing strength of LAN. In addition to its base in Chile, the group already has affiliates in Peru, Argentina and Ecuador, with its takeover of Brazil’s TAM (creating LATAM) well into the regulatory examination phase.

A bold experiment with possible regional alliance domination

With the possible exception of Lufthansa, no other carrier has demonstrated such a will towards regional dominance, and its effect on South America, should it prevail, will be far more pervasive than is the Lufthansa Group’s resonance in Europe.

Depending on how the group finally aligns itself, it has the possibility to significantly upset the alliance balance on the continent. LAN, a long-time oneworld anchor, could possibly remove TAM from Star and make most of Latin America a oneworld bastion. With few major carriers remaining to be recruited, this could create a unique and unbalanced (alliance-wise) region.

In the midst of all this, Star announced last week that Avianca/TACA and Copa have been invited to join the alliance, adding considerably to its presence in central and northern South American.

By adding TACA and Copa, Star becomes the dominant influence in Central America. TACA’s ownership by Avianca and Copa’s strong ties to Continental significantly enhance Star’s reach to the South. The addition of these three also increases the alliance's O&D profile at Miami, an airport with overwhelming oneworld dominance. However, the feed to other US Star members remains limited to transit to other Star hubs.

Aerolineas in Argentina is theoretically pledged to SkyTeam but the carrier continues to be a weak player. And it would do little to offset the influence of oneworld and its dominance, which includes American Airlines, the US carrier with the most powerful Latin American network.

If TAM remains with Star, the two alliances will be more closely matched in the region, leaving SkyTeam with few options. However, should LAN’s plans for TAM include an alliance switch, the strong regional advantage will remain with oneworld as Brazil remains the key market on the continent.

Additionally, should TAM defect, the geographic placement of the LAN affiliates give it a presence, and competitive clout, across the continent. It would also be the primary player in the nations that are economically dominant in the region.

Brilliant or scary?

Strategically, LAN has been brilliant in their choices and its aggressiveness may have caught many by surprise.

Should the LATAM initiative be approved by all the necessary regulators, the folks in Santiago will effectively pull most of the major aviation strings across the region, creating a group with unprecedented dominance across an entire continent. It could also drive GOL into a closer association with the carriers in a competing alliance. The net result could be either a template or a warning for the rest of the world as carriers seek to consolidate.


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