LAN Airlines and TAM announced their shares fell to their lowest levels in at least seven months after a Chilean antitrust regulator decided to proceed with a review of their planned merger to create LATAM (Bloomberg/Reuters, 19-Mar-2011). LAN reportedly declined 1.7% to USD24.7 and TAM 3.8% to USD19. The regulator reportedly stated the probe would take six to nine months. LAN stated the investigation could delay the deal, stating even if it were approved by the end of 2Q2011, the companies would not be able to merge before 4Q2011.
LAN Airlines and TAM shares fall as regulator proceeds with review
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LATAM and GOL: Excess capacity could threaten arrival of crucial recovery in Brazil domestic market
After two years of weak demand and pricing, some signs of stabilisation are emerging in Brazil; however the country’s two largest airlines are adopting an understandably cautious tone in their assessment of the operating environment. Although both LATAM Airlines Brazil and Gol have significantly reduced their domestic capacity during the last year and a half, both airlines have concluded that some excess supply remains in the market place. Fast-growing Azul has opted to slow its capacity growth in 2016, but Brazil’s fourth largest airline Avianca Brazil has continued growth in order to build its market share within the country.
LATAM Airlines Brazil also believes its performance on routes between the US and Brazil is improving, which is a similar conclusion drawn by US airlines operating between the two countries. For LATAM, the improved performance is offsetting some weakness on other long haul routes from its Spanish-speaking countries.
Neither airline has offered specific capacity guidance for 2017, but LATAM Airlines Brazil and Gol are likely to keep their supply restraint intact. Pricing in the domestic market has yet to stabilise, and competitive capacity actions will result in those airlines keeping their own ASK increases at bay in order to sustain a favourable supply/demand balance.