LATAM and Delta Air Lines rewrite the partnerships playbook


The proposed new tie-up between LATAM Airlines Group and Delta Air Lines is a masterful move by both companies.

LATAM gains a powerful and stable US partner and also secures an opportunity to continue de-levering its balance sheet. Delta gains prime access to some of Latin America’s most important and fastest growing markets, and presumably gets to exert some influence over LATAM’s direction. 

Their new partnership shows a certain level of forward thinking by both LATAM and Delta; it also raises questions about the long term viability of the global alliance structure as LATAM exits oneworld and Delta’s partnership roster becomes more balanced between non-alliance members and SkyTeam airlines. 

There are a lot of details to iron out before all the moving parts of the new relationship between LATAM and Delta become a reality, but the long term prospects for each airline have significantly improved. 


  • LATAM moves quickly to secure a new US partner as prospects for a JV with American have fizzled. 
  • The proposed tie-up reflects a growing trend of large airlines moving outside alliances to build network strength. 
  • Many details of the proposed tie-up need to be settled, but the new partnership creates significant upside for LATAM and Delta
  • The partnership and shareholding interestingly now place both Qatar Airways and Delta on the same register

LATAM worked swiftly to woo Delta as its new US partner 

Delta Air Lines CEO Ed Bastian recently observed that the LATAM deal had “presented itself” - and the final outcome is a proposed codeshare and eventual JV.

Delta’s pledge was to take a USD1.9 billion 20% stake in LATAM and a commitment to invest USD350 million in support of creating the partnership. Delta has also agreed to purchase four Airbus A350 widebodies in operation at LATAM and will assume LATAM’s commitment to purchase 10 of those widebody jets. 

The proposed new tie-up, while somewhat unexpected, was not a total shock. LATAM’s proposed JV with its fellow oneworld partner American was stalled after it was essentially rejected by a Chilean court, which cited its anti-competitive concerns about the combined market concentration of those two airlines. 

With United, Avianca and Copa working to move forward with their proposed JV, LATAM needed to find another US partner and Delta is obviously the best choice.

Delta gains access to the network of the largest airline in South America, with prominent positions in Brazil, Chile, Colombia, Peru, Argentina and Ecuador. Delta’s executives have explained that the new commercial relationship with LATAM will improve its point of sale in those markets, and the agreement obviously bolsters its overall connectivity in the region.

LATAM secures a stable US partner that is willing to make a long term commitment to the company. LATAM has also calculated that the deal will improve its cash flow generation and cut its forecast debt by over USD2 billion by 2025. The reduction in debt will help LATAM further improve its leverage ratio: its leverage has fallen from 5.8x in 2015 to 4.3X in 2018.

According to Cowen & Co analyst Helane Becker, Delta is using newly issued debt and its cash on hand to fund the 20% stake it is taking in LATAM. And although there is likely speculation that the USD16 share price tender offer is high, given that LATAM’s share price has traded between USD9 and USD12 during the past year, Ms Becker stated that while the price paid by Delta is significant, “this deal will make them [Delta] one of the strongest players in a growing market. We expect Delta's influence at LATAM will drive profit gains”.

Delta has pledged that its stake in LATAM will not affect its ability to deliver its adjusted net debt to EBITDAR targets of 1.5X to 2.5X and has calculated that the proposed deal with LATAM will generate USD1 billion of incremental revenue during the next five years. 

The proposed deal potentially cast a light on the outdatedness of alliances 

One of the predecessors to LATAM, LAN, was a member of oneworld for about 18 years, and TAM formally joined the alliance in 2014 after its merger with LAN. 

Now that it is pursuing a deep and broad relationship with Delta, LATAM plans to exit oneworld and remain independent. LATAM is showing little trepidation about leaving oneworld and the shift points to the growth of opinions that alliances could increasingly become outdated. 

Delta is an anchor member of SkyTeam, and the airline's JV with its fellow alliance members Air France-KLM has been a success. But its tie-ups with GOL (which vanish, given its new partnership with LATAM), Virgin America and WestJet show that alliances do not offer the network breadth and depth that airlines operating in today’s global aviation industry need. 

Delta, in particular, needed a strong partner in Latin America: Mr Bastian has noted that total annual revenue from South America to the US is approximately USD8 billion and LATAM’s business from South America to the US is approximately USD1.6 billion annually. 

GOL provided Delta with a strong position in Brazil’s domestic market but LATAM is a strong number two in that space, with a 31.3% domestic market share in Brazil behind GOL’s 35% share (based on ANAC data for the 1H2019).

LATAM also has a leading position (number one or two) in the growing markets of Peru, Ecuador, Argentina and Colombia, as well as its long-held position as Chile’s largest airline. 

Mr Bastian remarked that alliances had been slow to deliver on certain promises around technology.

"And so, we are not going to sit around and wait for the alliances to develop their technologies. We're working with them. But it's also important that Delta take control of our customer experiences into our own hands as best we can. So we're building on a bilateral basis…” 

It will be interesting to watch the LATAM-Delta network unfold 

LATAM and Delta are exuding a certain level of confidence in gaining necessary regulatory approvals for the proposed JV, citing only route where they overlap – Sao Paulo to New York. LATAM Airlines Group serves Delta’s hub in New York JFK and its growing focus city in Boston. Its other US destinations are Miami, where it has the largest network footprint,i and Orlando International

It remains to be seen if LATAM will ultimately serve more of Delta’s hubs, but recent history shows that is likely the case. Aeromexico added service to several of Delta’s hubs and focus markets once the two airlines launched their JV; however, LATAM executives recently stated that Miami will remain its focus airport in South Florida, which is logical given the traffic flows from Miami to North America.

But Miami remains a fortress hub for American, and its main gateway to Latin America, where it will maintain a solid position despite the breakup with LATAM. The Points Guy has reported that Delta plans to bolster its presence in Miami, further pressuring a beleaguered American Airlines

As the two relatively new partners become more entrenched there is no doubt there will be more network analysis to maximise their combined network between the US and Latin America. A snapshot of data from CAPA and OAG show that on a seat share basis as of late Sep-2019, LATAM and Delta would have a combined share of 25.9% from upper South America to the US and a 31.9% share from lower South America to the US

American, Delta and LATAM weekly seat share from upper South America to the US, as of late Sep-2019


Weekly seat share

Upper South America-US

American 23.6%
Delta  7.3%
LATAM Airlines Group  18.6%

American, Delta and LATAM weekly seat share from lower South American to the US, as of late Sep-2019


Weekly seat share

Lower South America-US

American 38%
Delta 9.4%
LATAM Airlines Group 22.5%

While the proposed tie-up between LATAM and Delta on the surface may seem like a tectonic shift in the global aviation landscape, the reality is that the partnership reflects more subtle movements in the aviation industry that have been happening for some time.

The once airtight loyalty that blanketed global alliances has been slowly vaporising as codeshares and even deeper relationships outside the boundaries of decades-old alliances continue to permeate the industry. 

Those changes are reflective of airlines in all regions attempting to broaden their reach, and showcase Delta’s unique strategy in obtaining equity stakes in many of its JV partners regardless of their alliance affiliation. 

Given those market dynamics, LATAM and Delta have seized on an opportunity that was not apparent on the surface but could ultimately prove to be a long term strategy benefit for both airlines for years to come. 

As for Delta's relationship with Qatar Airways, which holds 10% of LATAM"s stock, the new move is unlikely to result in warmer relations between the two long term protagonists.

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