US carrier stocks were dragged down by Latin American carriers on 11-May-2011 after Gol Intelligent Airlines lowered its operating profit margin because of higher fuel costs (Market Pulse, 11-May-2011). Shares of United Continental decline 1%, Delta Air Lines fell 1.5% and JetBlue fell 1%.
US carrier stocks dragged down by Latin American carriers
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Aeromexico and Delta JV: major uncertainty reigns after the DoT hits hard with slot divestitures
A transborder joint venture between SkyTeam partners Aeromexico and Delta is hanging in the balance now that the US DoT has required slot divestitures and other stipulations in order for the airlines to move forward with their proposed business agreement. Not surprisingly, Aeromexico and Delta believe limitations proposed by US regulators would diminish the economic benefits of the joint venture, and are warning they are reconsidering deepening their business ties.
Numerous airlines expressed concerns about Aeromexico and Delta’s concentration of slots at Mexico City Juarez, and the DoT responded by requiring slot divestitures at the airport along with the relinquishment of slots at New York JFK. The airlines have countered that the DoT’s analysis is flawed, and that a smaller number of slot divestitures at Juarez required by Mexico’s government should allay any concerns expressed by competitors. Aeromexico and Delta also argue another stipulation imposed by US regulators – limiting the joint venture to a five-year term – would create too much uncertainty for the viability of the business venture.
Delta’s plans to take its stake in Aeromexico up to 49% was contingent on the JV proposal succeeding. But with the stipulations imposed by DoT in order for the partners to establish their joint venture a dark cloud of uncertainty is hovering over Aeromexico’s future ownership structure.
American Airlines and Delta: the worst is over for Latin America’s weak revenue performance
Latin America has been a weak spot for airlines for more than a year; Brazil’s economy has crumbled and currency fluctuations have driven weakness in demand in some of the region’s other countries. But two of the US’ large global airlines, American and Delta, believe that Brazil in particular has reached an inflection point, and they sense a slow improvement occurring on routes to Brazil due to a rationalisation of capacity in those markets.
After steep revenue declines in its Brazilian markets, American expects it could post positive unit revenue results in those markets during 3Q2016, while Delta is citing positive trends for its Latin American entity that should continue into 2017.
Of course, it will take some time for airlines to reach the levels of revenue performance they enjoyed before Latin America’s economy began to contract, but the start of the slow climb out of the revenue doldrums is a welcome sign for a region that remains one of the most promising over the long term.