LAN Colombia expands oneworld market share in Latin America but TAM is the much bigger prize
Oneworld has increased its presence in Colombia, Latin America's third largest market, with LAN Colombia formally joining as an affiliate member on 1-Oct-2013. LAN Colombia is the second largest domestic carrier in Colombia after Star Alliance member Avianca and has a small but growing international operation.
Colombia is an important growth market but the impact of adding a Brazilian member is much more significant. Oneworld has set a 31-Mar-2014 ascension date for Brazil's largest carrier TAM, which is now part of the LATAM Airlines Group along with LAN Colombia and four other LAN-branded carriers that are already oneworld members.
With LAN Colombia and subsequently TAM, oneworld will become the largest alliance in Latin America with a projected 27% share of seat capacity. Star will still have a respectable 16% share, which could grow to about 18% based on probable new members, and will remain the dominant alliance in Colombia.
LAN Colombia gives oneworld access to a fast-growing domestic market
Even with the addition of LAN Colombia oneworld remains well behind Star in the Colombian market as Star has two local members, market leader Avianca and much smaller Copa Colombia. But LAN Colombia gives oneworld access to a fast-growing domestic market and adds 17 Colombian secondary cities to the alliance's map.
LAN Colombia currently serves 20 domestic destinations in Colombia. Only three of these cities - Bogota, Cali, and Medellin - were already served by oneworld carriers.
Colombia has the third largest domestic market in Latin America after Mexico and Brazil. It is among the 20 largest domestic markets in the world and is about the same size as the UK.
Colombia has recently been Latin America's fastest growing domestic market and one of the fastest growing in the world. In the first seven months of 2013, domestic passenger traffic in Colombia increased by 20% to 12.3 million passengers, according to Colombian CAA data.
LAN Colombia gives oneworld a 19% share of Colombia's domestic market
LAN Colombia is the second largest carrier in the Colombian domestic market, transporting 2.3 million passengers and accounting for 19% of the total market in the first seven months of 2013. LAN Colombia recorded 14% year-over-year domestic passenger growth for the period and an average seat load factor of 77%, according to Colombian CAA data.
Avianca has remained the dominant carrier in Colombia despite intensifying competition in recent years, initially from the entrance of LAN and subsequently from the launch of new low-cost carrier VivaColombia. Avianca transported 7.2 million domestic passengers in the first seven months of 2013, giving it a 59% share of the domestic market. Avianca recorded 13% year-over-year passenger growth and an average seat load factor of 80%.
VivaColombia launched services in May-2012 and is now Colombia's third largest domestic carrier, having already overtaken Copa Colombia. VivaColombia transported 1 million passengers in the first seven months of 2013 with an average seat load factor of 81%, giving it an 8% share of the total market.
Copa Colombia has been steadily shrinking domestic capacity over the last few years as part of a strategy at Copa Holdings to focus more on the international market, particularly services linking several Colombian cities with the group's main hub in Panama City. Copa Colombia saw its domestic passenger traffic drop by 13% in the first eight months of 2013 to 746,000 passengers, giving the carrier only a 6% share of the market.
Avianca and Copa Colombia both joined Star in Jun-2012, giving Star nearly two-thirds of the Colombian domestic market.
See related report: Avianca-TACA and Copa put Star on top in Latin America but the victory will be short-lived
Oneworld has now gained a 19% share, which is significant enough to give it a presence on all domestic trunk routes and major domestic destinations. Colombia's four unaligned carriers - LCC VivaColombia and regional carriers Satena, EasyFly and Antioquia - account for the remaining 16%.
Colombia domestic market share (% of passengers carried) by carrier: Jan to Jul-2013
Colombia domestic market share (% of passengers carried) by alliance: Jan to Jul-2013
LAN Colombia has a small but growing international operation
LAN Colombia also gives oneworld an increased presence in Colombia's international market. But for now the impact is not significant as LAN Colombia is primarily a domestic operator, with just four international routes.
The LATAM Airlines Group however is starting to use LAN Colombia to expand its presence in Colombia's international market, which is also seeing rapid growth with passenger traffic up 14% to 5.5 million in the first seven months of 2013. Colombia is Latin America's fifth largest international market and is also geographically well positioned to handle north-south transit traffic.
After entering the Colombian market in late 2010 through the acquisition of Aires, LAN initially focused on transitioning Aires from a low-cost to full-service operator. The transition was completed at the end of 2011 as the carrier adopted the LAN Colombia brand.
LAN Colombia has since pursued relatively modest growth as it has focused more on improving profitability and a re-fleeting, which has seen it start taking A320s which will eventually replace the 737-700s inherited from Aires. In 2012 LAN Colombia grew its domestic traffic by 13% to 3.6 million while international traffic grew by 9% to only 96,000. But it has started to pursue faster international expansion in 2013 with 203% year-over-year growth in the first seven months of the year to 117,000 passengers, according to Colombian CAA data.
Bogota-Miami accounted for 65,000 passengers or over half of LAN Colombia's total international traffic in the first seven months of 2013. LAN Colombia recorded 75% year-over-year growth on its Miami service with an average load factor of 74%. The growth was driven as LAN Colombia up-gauged its daily Bogota-Miami flight from A320s to 767-300s after taking delivery of its first 767 in Dec-2012.
See related report: Colombia-US open skies to usher in new era of growth, led by JetBlue and LAN Colombia
International routes within South America accounted for LAN Colombia's remaining 52,000 international passengers in the first seven months of 2013. For the same period of 2012, LAN Colombia only carried 1,500 passengers. LAN Colombia currently serves Sao Paulo and Santiago with 767s and Lima with A320s.
Aruba service starts a new chapter in network development for LAN Colombia
Sao Paulo, Santiago and Lima are all hubs of sister carriers in the LATAM Airlines Group. LATAM is keen to start using LAN Colombia to operate hub-to-spoke international routes, starting with Bogota-Aruba.
LAN Colombia recently announced plans to begin service to Aruba on 1-Dec-2013 with two weekly A320 flights. The addition of Aruba is significant as the island is not currently served by any LATAM carrier. LAN Colombia plans to tap into the large local demand for travel between Bogota and Aruba as well as offer connections to Argentina, Chile, Ecuador and Peru, where it can leverage the distribution network of its sister carriers. Currently the Bogota-Aruba route is only served by rival Avianca with one daily A320 flight.
Oneworld membership should further help LAN Colombia grow its international network. LAN Colombia currently only accounts for 2% of international capacity in Colombia, providing limited value to oneworld. But its share of the international market should increase significantly in the coming years, thereby increasing the market share for oneworld.
Currently oneworld has only a 14% share of Colombia's international market, based on passenger traffic for the first eight months of 2013. Star has a commanding 66% share, driven by Avianca and Copa, while SkyTeam has only a 5% share.
Colombia international market share (% of passengers carried) by alliance: Jan to Jul-2013
American Airlines and LAN Colombia to work closely
American is currently the biggest oneworld carrier in the Colombian international market, accounting for 5% of the total market. American is the second largest foreign carrier in Colombia after Avianca's Ecuadorean subsidiary AeroGal.
American transported 293,000 passengers to and from Colombia in the first eight months of the year, according to Colombian CAA data. The carrier's year-over-year growth was only 1% but its Colombian traffic will surge in the coming months as it has unveiled plans to launch daily service from Dallas to Bogota on 21-Nov-2013.
American currently only serves Colombia from its Miami hub, with two daily flights to Bogota and one daily flight to Cali and Medellin. American has been a close partner to LAN for several years as both are founding members of oneworld. Ahead of its ascension into oneworld LAN Colombia also began codesharing with American Airlines in Aug-2013
LAN Colombia now carries American's code on domestic connecting flights within Colombia while American carries LAN Colombia's code on domestic connecting flights within the US. The domestic connections in Colombia should help support further growth for American in Colombia and make the new service from Dallas viable. The domestic connections in the US should also help LAN Colombia on its Miami route, particularly given the flight is now operated with widebody aircraft.
LAN Colombia will also likely work closely with the other oneworld member serving Colombia, Iberia. The Spanish carrier serves Bogota daily from its Madrid hub. Iberia in the first seven months of 2013 accounted for about 2% of total international passenger traffic in Colombia.
Avianca Holdings accounts for over 50% of Colombia's international market
Avianca remains the dominant carrier and airline group in the Colombian international market. Avianca flew 2.2 million international passengers to and from Colombia in the first eight months of 2013, representing year-over-year growth of 11% and accounting for 40% of the total market.
When including Avianca subsidiaries AeroGal (Ecuador), LACSA (Costa Rica), TACA International (El Salvador) and TACA Peru the Avianca Group accounted for a commanding 52% of international passengers carried in Colombia during the first eight months of 2013. Avianca, LACSA, TACA and TACA Peru are already members of Star while AeroGal is in the process of joining the alliance. Once AeroGal joins, Star will see its share of the Colombian international market grow by about another 6ppt to 72%. AeroGal will most likely formally enter Star in 2H2014.
AeroGal is currently the largest foreign carrier serving Colombia, with 316,000 passengers carried in the first seven months of 2013. AeroGal recorded 35% year-over-year passenger growth for this period as it has been taking from Avianca some flights between Ecuador and Colombia as part of reduced focus on the Ecuadorean domestic market.
See related report: Avianca market share in Ecuador slips as domestic operation is reduced while LAN and TAME expand
Star member Copa is the second largest player in the Colombian international market, with a 16% share of passengers carried in the first seven months of 2013. In comparison, LATAM only had a 6% share.
Colombia international market share (% of passengers carried) by group: Jan to Jul-2013
In addition to members of the Avianca and Copa groups, there are three other Star carriers currently serving Colombia - Air Canada, Lufthansa and United. SkyTeam has four carriers serving Colombia but all with small operations - Aerolineas Argentinas, Aeromexico, Air France and Delta Air Lines.
Of the top 20 carriers serving Colombia, 17 are aligned. Only AeroGal and two US LCCs, JetBlue and Spirit, are currently not aligned.
Colombia international passenger traffic by carrier: Jan to Jul-2013
In addition to LAN Colombia, Bogota is currently served by Chile-based sister carrier LAN Airlines and LAN Peru. LAN Airlines is a founding member of oneworld while LAN Peru joined later as an affiliate.
The other carriers that make up LATAM - LAN Argentina, LAN Ecuador, TAM and TAM Paraguay - do not currently serve Colombia. LAN Argentina and LAN Ecuador are oneworld affiliates while TAM will formally join oneworld on 31-Mar-2014. TAM Paraguay will also join the alliance at a later date which has not yet been set.
TAM will give oneworld control of Brazil, greatly changing the alliance balance
As the market leader in Latin America's largest market, Brazil, TAM's transition from Star to oneworld will dramatically alter the alliance landscape in the region. LATAM announced on Mar-2013 that TAM, TAM Paraguay and LAN Colombia would join its other subsidiaries in oneworld. LAN Colombia was able to formally join faster as it had been unaligned. TAM is currently part of Star but will exit Star on 30-Mar-2014, one day before it enters oneworld.
As CAPA previously reported, the Mar-2013 announcement from oneworld simply confirmed "moves that had been considered a foregone conclusion for 18 months. The Star Alliance now faces the risk of not having a member in Brazil, one of the world's most important growth markets, after TAM shifts from Star to oneworld. But the void will not last long as Brazil's fourth largest carrier, Avianca Brazil, will almost certainly join its sister carriers in Star, potentially by the end of 2014 ... Avianca Brazil was not initially accepted by Star with its sister carriers [in 2010] due to an objection by TAM. But that objection is now moot and Star needs Avianca Brazil more than ever. Avianca Brazil is now working on upgrading its IT systems to prepare it for possible Star membership. Avianca Brazil is fully owned by Synergy Aerospace, which is the largest shareholder in Avianca-TACA Holdings and in 2012 made an ultimately unsuccessful bid to buy Star member TAP Portugal."
See related report: Pressure mounts on Star and SkyTeam to secure Brazilian members as TAM confirms switch to oneworld
Avianca Brazil has still not formally announced it will join Star. But the carrier is expected to join the alliance and an announcement could be imminent. The more than 10 Star members which serve Brazil and would like to see Avianca Brazil be part of Star as soon as possible in order to maintain a presence in the important Brazilian domestic market.
Avianca Brazil is no TAM but it operates most domestic trunk routes with its main hub at Sao Paulo Guarulhos, which is the main international gateway to Brazil. According to Brazilian ANAC data, Avianca Brazil accounted for 7% of RPKs in the domestic Brazilian market in the first eight months of 2013. TAM accounted for a market leading 40% share.
oneworld is the most powerful alliance in Latin America, with LATAM as its core
Even with AeroGal and potentially Avianca Brazil joining Star, oneworld will remain the largest alliance in Latin America by a wide margin.
Star currently accounts for 28% of seat capacity in Latin America but will see its share drop to about 16% after TAM exits on 30-Mar-2014. While giving Star some domestic presence in Brazil and Ecuador, the addition of Avianca Brazil and AeroGal would only result in a 2ppt gain in the overall Latin America region to 18%.
SkyTeam will remain the smallest of alliances in the Latin American market with about a 12% share.
Latin America capacity share (% of seats) by alliance: Oct-2013
Note: based on schedule data for week commencing Oct-2013
Source: CAPA - Centre for Aviation & Innovata
Oneworld, meanwhile, will see its share of capacity in Latin America increase from 15% currently (includes LAN Colombia) to 27% after TAM joins on 31-Mar-2014.
Latin America capacity (% of seats) by alliance: Apr-2014
Note: based on capacity data for first week of Oct-2013
Includes TAM exiting Star and joining oneworld.
Includes TAM Paraguay, AeroGal and Avianca as unaligned as these carriers will likely not enter alliances (oneworld for TAM Paraguay; Star for AeroGal and Avianca) until later
Source: CAPA - Centre for Aviation & Innovata
About 45% of the Latin American market remains unaligned but this consists primarily of LCCs and small full-service carriers that would not be considered alliance candidates. With all LATAM Airlines Group carriers as members, oneworld's lead in the region is assured. This is inevitable given the huge market share LATAM has across Latin America.
But some areas of Latin America will remain strongholds of Star or SkyTeam.
For example, LATAM and oneworld remain weak in the region's second largest market Mexico, where SkyTeam's Aeromexico has been the only alliance member since oneworld's Mexicana ceased operations in 2010. In the region's third largest market Colombia, oneworld has gained a valuable presence with LAN Colombia but Star will continue to dominate.