Avianca: shareholder strife threatens plans to deepen ties with United

Avianca Holdings’ generally positive outlook is being overshadowed by a deep rift and battle between the company’s two largest shareholders over a tie up with, and strategic investment by, Avianca’s fellow Star Alliance partner United Airlines. The legal wrangling ensuing over Avianca’s and United’s future partnership could drag out their potential commercial tie up, possibly placing Avianca at a competitive disadvantage to its rival LATAM Airlines Group.

Avianca is also reconsidering a potential merger with Avianca Brazil after deciding against merging with Brazil’s fourth largest airline in 2014. The public rationale behind Avianca’s decision to have a second look at Avianca Brazil includes the beginning of a long economic recovery in Brazil, and improved financial conditions at Brazil’s fourth largest airlines.

In the short term, Avianca plans a capacity growth increase year-on-year in 2017, citing sustained demand and strong traffic and load factor growth in 2016. Although the company’s yield growth remained negative year-on-year in 4Q2016, Avianca posted sequential improvement in that metric throughout the year. The company feels confident about the trajectory of Latin America’s economic recovery, but Avianca’s long term strategy remains clouded by the composition of its ownership structure in the future.

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