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Air France-KLM, Air Europa JV: EUR-Latin America aviation transforming

Air France-KLM and Air Europa are planning a new metal neutral joint venture for Europe-Central/South America routes. They are deliberating the detail of a collaboration that will widen and deepen existing commercial cooperation between Air Europa and both Air France and KLM over more than 15 years.

This includes "an in-depth legal analysis of the terms of this possible future agreement in order to ensure compliance with all applicable laws and regulations". It is hoped that the JV might launch in the summer of 2019.

Bilateral commercial cooperation between the SkyTeam partners is limited to codeshares on routes from their respective hubs to destinations in Europe. If concluded, the new JV would be the first such agreement between the two, and Air Europa's first JV.

In the market from Europe to Central/South America, Air France-KLM and IAG are neck and neck in the capacity ranking. IAG's JV with LATAM would pull ahead, whereas Air France-KLM's planned JV with Air Europa would maintain near parity in capacity and give it a clear lead in the number of destinations in Central/South America. It would also help to strengthen Air Europa in its intensifying competitive battle with its Spanish rival Iberia.

Summary

Air France-KLM and Air Europa currently codeshare on European routes only

Air France and Air Europa currently codeshare on 21 routes within Europe, while KLM and Air Europa now operate 19 codeshare routes within Europe.

For example, in the week of 13-Aug-2018, Air France carries Air Europa's UX code from Paris CDG to Aberdeen, Bilbao and Barcelona. KLM carries Air Europa's UX code from Amsterdam to Berlin Tegel and Copenhagen (source: OAG).

Air Europa carries the KL code from Madrid to Amsterdam, Bilbao, Fuerteventura, Gran Canaria, Ibiza, La Coruna and Lanzarote, Palma de Mallorca, Tenerife-Norte and Vigo. Air Europa carries the AF code from Madrid to Gran Canaria, Ibiza, La Coruna, Lanzarote, Palma de Mallorca, Paris Orly, Tenerife-Norte and Vigo.

Europe-LatAm: AF-KLM has a clear lead over IAG

The Europe-Latin America market is dominated by European airlines and led by Air France-KLM, although IAG's Iberia is the biggest individual airline presence in this market.

According to data from OAG for the week of 13-Aug-2018, Air France is the number two airline by seats between Europe and Latin America, with 10.8% of seats and only fractionally behind Iberia, which has 11.1%. Air Europa is number three, with 7.3% of seats, and KLM is number four, also with 7.3%.

In terms of airline groups, Air France-KLM has a combined share of 18.1% – a clear lead over IAG, which has 15.9% (British Airways has 4.8%).

However, the planned JV between IAG and LATAM Group would have a seat share of 22.1%, taking it ahead of Air France-KLM. The Air France-KLM/Air Europa JV would reclaim the lead, with 25.4% of seats.

Europe to Latin America: top 10 airlines ranked by seats, week of 13-Aug-2018

Rank

Airline

Share of seats

1

Iberia

11.1%

2

Air France

10.8%

3

Air Europa Lineas Aereas

7.3%

4

KLM Royal Dutch Airlines

7.3%

5

TAP Air Portugal

6.4%

6

LAN Airlines

6.2%

7

Air Caraibes

4.9%

8

British Airways

4.8%

9

Lufthansa

4.3%

10

TUI Airways Ltd

3.7%

 

All others

33.3%

Europe-LatAm ex Caribbean: Air France-KLM and IAG are neck and neck

The planned JV will focus on the market between Europe and Central/South America (i.e. Latin America excluding the Caribbean).

In this market, Iberia is again number one, but its 14.4% seat share in the week of 13-Aug-2018 gives it a bigger lead over number two Air France, which has 10.0% of seats. KLM ranks fifth, with 8.4%, behind TAP Air Portugal, which has 9.3%, and LAN, which has 8.9%.

In terms of airline groups, Air France-KLM's lead in this market is almost non-existent. Its 18.4% seat share compares with 18.2% for IAG. Moreover, the proposed IAG/LATAM JV would add in fourth placed LAN's 8.9% to create a combined share of 27.2%, significantly more than Air France-KLM.

The Air France-KLM/Air Europa JV would have a seat share of 26.4% on routes between Europe and Latin America excluding the Caribbean. This would still be less than the IAG/LATAM JV, but would narrow the gap considerably.

Europe to Latin America ex Caribbean: top 10 airlines ranked by seats, week of 13-Aug-2018

Rank

Airline

Share of seats

1

Iberia

14.4%

2

Air France

10.0%

3

TAP Air Portugal

9.3%

4

LAN Airlines

8.9%

5

KLM Royal Dutch Airlines

8.4%

6

Air Europa Lineas Aereas

7.9%

7

Lufthansa

6.1%

8

Avianca

4.5%

9

Alitalia

4.3%

10

Aeromexico

4.2%

 

All others

21.9%

Air France-KLM and Air Europa both bring JV destinations not served by the other (or by IAG)

In the market between Europe and Latin America excluding the Caribbean, Air Europa has 15 destinations, while Air France has 13 and KLM has 14. As a group, Air France-KLM has 18 unique destinations (nine are served by both of its main airlines).

There are four destinations served by all three airlines (Bogotá, Buenos Aires, São Paulo and Lima) and four more destinations that are served by both Air Europa and one of the Air France-KLM airlines (Cancún, Caracas, Guayaquil and Quito).

Nevertheless, both sides will bring to the JV a significant number of destinations not served by the other party.

Air Europa serves seven destinations not served by Air France-KLM (Asunción, Córdoba, Montevideo, Recife, Salvador, San Pedro and Santa Cruz). All but one of these (Montevideo) are not served by either BA or Iberia, so Air Europa will bring to Air France-KLM six destinations not served by IAG.

Air France-KLM serves 10 destinations not served by Air Europa (Cartagena, Cayenne, Curaçao, Fortaleza, Mexico City, Panama City, Paramaribo, Rio de Janeiro, San José and Santiago). Half of these destinations are not served Iberia (or BA), so Air France-KLM will bring to Air Europa five destinations not served by its main rival.

Europe to Latin America ex Caribbean: destinations served by Air Europa, Air France and KLM, week of 13-Aug-2018

 

BA has eight destinations in Latin America excluding the Caribbean, while Iberia has 15. They have 16 unique destinations between them.

The LATAM JV will effectively bring additional seat capacity to IAG, but only adds one destination to those already served by BA and/or Iberia.

LAN Airlines has four destinations in Latin America served from Europe (São Paulo, Santiago, Lima and Guayaquil), but only one (Guayaquil) is not served by IAG airlines (the other three are served by both BA and Iberia).

Based on the week of 13-Aug-2018, the Air France-KLM/Air Europa JV would have 25 unique destinations in Latin America excluding the Caribbean, while the IAG/LATAM JV would have 17.

Europe to Latin America ex Caribbean: destinations served by British Airways, Iberia and LAN Airlines, week of 13-Aug-2018

 

Air Europa already has 22 codeshare partners

Air Europa already has 22 codeshare partners, including Air France and KLM in addition to most other SkyTeam members (these include Aeroflot, Delta, Alitalia, China Eastern, and Korean Air). The only SkyTeam members that do not codeshare with Air Europa are China Southern and Kenya Airways.

In Latin America, it has codeshare agreements with SkyTeam's Aerolineas Argentinas and Aeromexico, in addition to Avianca Brazil. Outside the SkyTeam alliance, Air Europa's codeshare partners include Ethiopian Airlines, Etihad and Turkish Airlines.

Latin America dominates Air Europa's long haul network

Latin America is by far the most important region for Air Europa's network outside Europe.

The region accounts for 37.3% of the airline's international departing seats in the week of 13-Aug-2018, or 29.1% excluding the Caribbean. Overall Latin America makes up 87.4% of Air Europa's long haul seats (source: OAG).

For Air France-KLM the region is important, but less so. Latin America accounts for 26.6% of Air France's long haul seats and 24.0% of KLM's long haul seats (week of 13-Aug-2018, source: OAG).

Air Europa international departing seats by region: week of 13-Aug-2018

 

The proposed new deal looks positive for both sides

There remains much detail to be worked through by Air Europa and Air France-KLM and finalised.

An important related element will be to ensure sufficient feed and beyond traffic in Latin America. This may require some expansion of codeshares with local airlines in the region for both Air Europa and Air France-KLM, possibly eventually bringing Latin American partners into the JV.

In addition, there may also be some concerns from competition authorities.

Nevertheless, at first sight, the proposed new deal between the two looks to be positive for both sides. The planned JV between IAG and LATAM was announced in 2016 and is thought to be nearing final competition authority approval. That deal will result in a grouping with a clear lead on routes between Europe and Central/South America.

A JV between Air France-KLM and Air Europa looks like a suitably aggressive response.

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