Viva believes the airline consolidation story in Latin America is far from over
Although airline consolidation in the Latin American market appears to be occurring at a rapid-fire pace, the reality is that the latest agreements to emerge took some time to develop and finalise.
- Viva, Avianca and GOL are in the process of creating a new wave of consolidation in the Latin American market.
- Viva believes many factors contributed to its participation in 'Abra'.
- The creation of Abra will result in many benefits for the airline conglomerate.
- Viva predicts more consolidation in store for Latin America.
Abra will comprise the principal shareholders of Avianca and the controlling shareholder of GOL. The Abra group will own a non-controlling 100% stake of Viva and convertible debt representing a minority interest investment in Chile’s Sky Airline.
See related CAPA report: Avianca continues to shake up Latin America's aviation scene with creation of ‘Abra'
Speaking at the recent CAPA Americas Aviation and LCCs Summit in Puerto Rico, Viva CEO Felix Antelo explained that once it had restarted operations after the Colombian market reopened during the COVID-19 pandemic, Viva was engaged with many parties about its future.
Viva foresees numerous benefits from the creation of Abra
The airlines making up Abra will maintain their own separate brands and operating segments, “and if we do this right...the opportunity that we see is massive”, said Mr Antelo.
“There’s a long way to go”, he said.
The creation of the mega airline group Abra also has numerous benefits, said Mr Antelo, including investment in technology, and scale in working with vendors.
Becoming part of a strong financial group that has more access to capital, and an ability to deploy technology in a faster manner, is “the right way to go”, Mr Antelo said.
Abra is not writing the last chapter of consolidation in Latin America
Mr Antelo does not believe Abra is writing the last chapter of airline consolidation in Latin America.
He believes that moving forward, three to four large airline groups will emerge in Latin and South America, which will result in a more profitable and sustainable industry.
The timing of that consolidation is tough to determine, Mr Antelo said; but he stated that Abra expects the antitrust approval process for its consolidation to take approximately one year.
Who will make the next move in Latin American M&A?
The question is: who will make the next move?
Latin America: departing frequencies by airline, as of early Jun-2022
Azul attempted to purchase LATAM earlier this year but abandoned those plans after it determined that the valuation of LATAM in the company’s Chapter 11 reorganisation plan was higher than Azul found to be credible.
LATAM Airlines Group should emerge from bankruptcy protection sometime in 2022, and it is likely evaluating how to move forward in a rapidly changing environment.
Obviously a tie-up with Azul would give the combined entity its own powerful level of scale in the region, but Azul recently stated that it was confident of its strategy in Brazil, and was focused on its core business.
The ultra-low cost airline group JetSMART, which has operations in Chile, Argentina, and soon, Peru, could be a potential suitor for LATAM – but American Airlines has recently invested in both JetSMART and GOL. Given those dynamics, the possibility of a LATAM-JetSMART tie-up seems somewhat unlikely.
There are also unanswered questions regarding Abra’s partnership strategy.
Delta Air Lines has also maintained an investment in LATAM, and the two operators are working to launch their own joint venture. Presumably, Delta will have some influence over the direction LATAM takes once it exits Chapter 11.
It is tough to determine what happens next in Latin America
As Abra now works to navigate the regulatory approval process, it seems the consolidation story in Latin America is far from over.
But predicting which entity will make the next move is not cut and dried, since many different dynamics remain in play.
Whatever the outcome, Latin America will be a region to watch closely over the next year.