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.
> Read More: Chilean Supreme Court Blocks LATAM Marriage With British Airways And American Airlines
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.
CONCLUSION
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.
image: LATAM
Delta is far too rapidly becoming the 800 pound gorilla. If they get a big chunk of the South American market this way, it’s unlikely to ultimately benefit the customer.
Agreed, but they don’t have zero overlap. GRU-JFK is a route shared by both.
With two additional competitors, because American and United operated it and until April of this year also Avianca Brazil. It will remain a very competitive route
Yes
Hopefully all joint ventures from today onward will be denied. They don’t benefit the consumers and with smaller players going out of business (XL Airways, Thomas Cook, Adria, etc) we need as much competition as possible.
Basically Argentina and Brazil will be dominated by Sky team since AV Brasil is extinct…leaving Gol and Azul as competition with very small participation of the Market since LA has over 40%, Argentina will be Sky Team since AR is also part of the Sky Team. Total domination of Chilean market by LATAM. AA Now has increased their direct routes to key markets such as Argentina, Colombia and Brasil… But Latin America it has a very strong affiliation for Frequent Flyer programs and LATAM departing from OneWorld it might affect demand on AA flights… Something that UA it has been trying with the struggled AV and not do comfortable CM… Let’s see what will happen r
There is one overlap route: JFK-GRU, although there is ample competition with AA also flying JFK-GRU and United flying EWR-GRU. This JV is getting approved.
In Brazil, GOL has a 34.2% domestic market share, followed by LATAM at 32.8%, Azul at 19.3%. This was before Avianca’s collapse. Internationally from Brazil, LATAM holds a commanding 69% share from Brazil.
If you look at seat share after LATAM moves to Delta, pulled from Diio covering the last 12 months looking at US to South America traffic, AA will still have 37% of the available seats between these regions, with Avianca and United holding 35%, and LATAM and Delta with 28%. AA is well placed in Miami, the top destination for South Americans, while Delta/LATAM will be weak in northern South America (outside of Peru), and United will be weak in the Deep South. I don’t count Azul as a United buddy yet as Azul doesn’t belong to Star despite being partly owned by United.
First, let me say with this comment I’m NOT intending to be political in any way, but one thing that popped into my mind was resistance, not on the Chilean side, but on the U.S. side. I was thinking about the meeting that Bastian missed with Trump. Reports suggested that the Prez was fixated on Bastion’s absence during the meeting with AA, UA, and (oddly enough) QR CEOs. Again, not intending to be political, but the Prez has a reputation of being somewhat petty when people don’t play ball by his rules. So, my questions if you think there would be any possibility of Trump directing his DOT to deny the JV, simply as a form of retribution. I know this decision is below his pay grade, but….