Can Delta’s proposed investment and joint venture partnership with LATAM clear regulatory hurdles? American Airlines’ failed bid to link up with LATAM offers a starting point for discussion.
News that Delta will invest in LATAM and form a joint venture partnership came as a particular surprise since American Airlines spent the last two years trying to form its own JV partnership with LATAM along with British Airways and Iberia.
Earlier this year, it looked like the deal was done. But after a final appeal in Chile, the Chilean Supreme Court blocked the deal, which held the partnership would undermine competition and quality.
We are in the presence of an agreement between competitors…who individually each have relevant market shares and who would acquire a joint market power that would be hard to challenge in a post-deal scenario.
The key word is relevant. Of particular interest to Chile were two routes, Santiago to Miami and Santiago to Madrid. The proposed JV would have ended competition on those two key routes. Accepting the conclusion of Chile’s anti-trust enforcer, the Chilean Supreme Court blocked the JV link-up specifically on those grounds.
Delta and LATAM have virtually zero direct overlap (only JFK-GRU) and a fairly complementary route network. Key hubs like Miami and Madrid are not Delta strongholds and the proposed JV agreement would not hurt consumers if its leads to 1.) more connecting options and potentially more longhauls via Delta hub cities and 2.) a greater Delta presence in Miami.
A metaphor is appropriate here. While American and LATAM wanted to use synergies to cut the cost of the pie, it appears that Delta wants to expand the pie by growing both LATAM and its own network in Latin America. This, coupled with Delta’s continued investment in the onboard product, will likely be viewed as a boon for consumers. Plus, key routes like Santiago to Miami and Madrid will remain competitive.
There are distinct differences between the LATAM JV application for American and Delta. Delta is more likely to prevail because it promises not just more competition than American, but a better route network and customer experience.