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American Airlines, LATAM to File for a Joint Venture

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American Airlines, LATAM to File for a Joint Venture

American Airlines, LATAM to File for a Joint Venture
January 15
04:40 2016

MIAMI — American Airlines and its oneworld partner LATAM Airlines Group are applying for regulatory approval to enter into a joint venture (JV) partnership. This new Joint Venture would allow American and LATAM Group member airlines (LAN Airlines, LAN Argentina/Colombia/Ecuador/Peru, TAM Airlines, and TAM Paraguay) to coordinate schedules, plan capacity together, make joint pricing decisions, and essentially act as one business on routes between the United States and the six South American countries (Brazil, Chile, Colombia, Paraguay, Peru, and Uruguay). As a precursor to a Joint Venture, the carriers will first have to secure anti-trust immunity (ATI) from the US Department of Transportation and the appropriate local authorities in South America.

The American / LATAM Joint Venture will drive concessions

American has been the dominant US legacy airline in terms of service to South (and Latin) America since 1991, when it built up a hub at Miami in the wake of Eastern Airlines’ demise. Miami is the center of the US-South America air travel market thanks to a huge population of immigrants from those nations and strong international business ties that drive lucrative origin and destination (O&D) demand.

LAN and American have been oneworld partners for a long time, as LAN was one of the earliest oneworld members, joining in 2000. When LAN and Brazilian full service carrier TAM merged in 2012, the two carriers elected to stay in oneworld, opening the door for this partnership. The two oneworld partners now dominate the US-South America market, and for them to be granted a joint business, concessions will clearly have to made.

As mentioned before, Miami is the single most important airport for South America – US air travel links, and LATAM and American’s combined dominance will be particularly acute in the South Florida metropolis. Most of the markets covered by this JV are wide open for competitors with the notable exception of Miami – Sao Paulo, one of the most lucrative routes in the entire world. In order to win ATI and form a JV, American may well be forced to give up some of its prime slots at Sao Paulo’s Guarulhos International Airport in order to allow a new entrant to offer service on the Miami-Sao Paulo route, injecting competition into the market.

Luckily for American and LATAM, these types of concessions rarely work out all that well. From Virgin Atlantic’s failed Little Red experiment in the UK to Delta’s flawed attempts at flying Miami-London Heathrow after British Airways and American were granted ATI, history has shown that attempts to introduce long-haul competition via new entrants on these types of deals rarely produces anything that is sustainable. Delta would probably take a crack at Miami-Sao Paulo if the slots became available. But it wouldn’t necessarily change the competitive situation.

The Brazilian Open Skies Agreement still unsettled

Part of what theoretically enables this JV to come to fruition is the open skies agreement between the US and Brazil. Inked back in 2010, that deal was supposed to come to fruition in October of 2015, but October of last year came and passed with no tangible news on that front.

The US and Brazil technically still don’t have open skies agreements and as the US government proved with the Delta-Aeromexico application, the open skies agreement is a precursor for any grant of ATI or a JV. Until the Brazilian open skies question is settled, this application is on uncertain ground.

Another outstanding question is the exclusion of Argentina, a key market of joint focus for the two carriers. LAN has a subsidiary based in the country with a hub at Buenos Aires while American operates a substantial long-haul network to Argentina, which is one of its most lucrative and important markets. Even after recent economic events took some of the shine off of Argentina, it is curious that the two carriers would exclude such an important market from their application.

Regardless of the rationale, this Joint Venture is a deal that may shake up the US – South America air travel market, consolidating the two biggest players and potentially reducing competition and service sharply and leaving consumers worse off. Once the legal questions are settled, it will be interesting to see how the two carrier’s network profiles change and which carrier gets the Miami-Sao Paulo route under concession.

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About Author

Vinay Bhaskara

Vinay Bhaskara

Senior Business Analyst, Big Airline Enthusiast, Avid Airport Connoisseur, Frequent Flyer, Globetrotter. I Miss Northwest Airlines Every Day. vinay@airwaysmag.com @TheABVinay

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