LATAM's JVs Part 2: IAG joint venture would greatly strengthen their Europe-South America position

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The new joint business agreement between International Airlines Group (IAG) and LATAM Airlines Group (LATAM) on flights between Europe and South America was widely anticipated. However, LATAM has pulled off a coup in simultaneously signing similar agreements not only with IAG, but also with oneworld's biggest member - American Airlines. IAG/LATAM would together serve more than 100 destinations in South America and 87 in Europe.

IAG announced the revenue-sharing agreement between British Airways, Iberia and LATAM on 14-Jan-2016. It is another example of what is loosely referred to as a joint venture (JV), under which commercial cooperation on chosen routes moves beyond codesharing to a deeper level. The agreement also encompasses reciprocal FFP recognition.

As JVs typically involve the coordination of schedules and pricing, they require regulatory approval in order to avoid the charge of collusion, which would otherwise be illegal. IAG and LATAM expect this could take 12 to 18 months, so implementation of the JV may not take place until the winter 2017/2018 season. If approved (and if without too onerous regulatory concessions), the JV will strengthen the oneworld members on Europe-South America. Star Alliance and SkyTeam (capacity leader in this market) will need to find responses.

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