Avianca continues to shake up Latin America's aviation scene with creation of 'Abra'
If there were any doubts that Avianca had bold ambitions after its exit from bankruptcy, they have been put to rest.
Abra will comprise the principal shareholders of Colombia's Avianca and the controlling shareholder of Brazil's GOL. It will own a non-controlling 100% stake of Viva, and convertible debt representing a minority interest investment in Chile's Sky Airline.
Now the questions are how will competitors react, and will further alliances – and even consolidation – follow.
- Avianca has made an agreement with GOL to create a powerhouse Latin American aviation group: Abra.
- Abra will have a strong position in both Brazil and Colombia.
- The company’s member airlines will not have fleet commonality.
- Another layer of complexity in the proposed Avianca-GOL agreement is existing alliance and partnership structures.
- Will the creation of Abra spur more consolidation in Latin America?
Avianca and GOL aim to close the deal in the second half o this year, and if they are successful in their efforts Abra would have leading positions in Brazil and Colombia. Data from CAPA and OAG show that GOL has a 32% share of Brazil’s domestic available seat kilometres (ASKs), compared with approximately 34% each for LATAM Airlines Brazil and Azul.
Brazil's domestic ASKs, by airline, for the week commencing 09-May-2022
Colombia domestic ASKs, by airline, for the week commencing 09-May-2022
Industry veteran Roberto Kriete will serve as Abra Group’s chairman, and during a 11-May-2022 conference call he explained that Avianca and GOL will each be able to expand operations in markets where they are not active today. The group will also be relentlessly focused on costs to achieve the lowest cost per seat on long haul flights, he explained.
Each airline operating under the Abra group umbrella will “maintain independent brands, talent themes and cultures”, Mr Kriete stated.
Some new fleet complexity will accompany the scale created by the Abra group.
Avianca: fleet summary as of early May-2022
Viva has 23 aircraft in service and 23 A320neos on order.
Viva: fleet summary as of early May-2022
GOL: fleet summary as of early May-2022
Will other airlines feel the need to respond to the creation of Abra?
Azul attempted to acquire LATAM, which remains in Chapter 11, but ultimately dropped its efforts to buy its rival, concluding that the valuation of LATAM in the company’s Chapter 11 reorganisation plan was higher than Azul found to be credible.
During a 09-May-2022 earnings discussion Azul CEO John Rodgerson fielded a question regarding LATAM, stating that Azul was confident in its stand-alone plan and saying, “We’re very confident with what we’re doing here in Brazil, and focusing on our core business.”
Copa CEO Pedro Heilbron recently said that the airline might emerge as the only one with “the right product for the business traveller in our part of the world, and that’s a plus”. That was not the case before the coronavirus pandemic, said Mr Heilbron, but some of Copa’s competitors are headed towards lower cost models.
He explained that Copa continued to have low costs, and both a strong product and network.
“I won’t talk about if we have to react or not. I think if we choose to stay focused on our business model, I think we can continue to be very successful doing it that way”, Mr Heilbron said.
Will the existing partnerships that Abra airlines have remain intact?
Avianca is a member of the Star Alliance, and before the pandemic it was working to establish a joint venture with United Airlines. American Airlines has spent USD200 million for a 5.2% stake in GOL and the two airlines are deepening their partnership.
More details of Abra are likely to emerge when, or if, the proposed agreement gains necessary regulatory approvals. But the curators of the deal believe the new company, with its scale and diversified market presence, “will be able to better compete with large legacy carriers and global carriers active in our region”, Mr Kriete said.
Avianca works to write the next chapter of Latin Aviation
Now the industry will see how the rest of 2022 unfolds.