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Delta’s Deal For 20% Of Latin America’s Largest Airline Leaves Competitors Scrambling

This article is more than 4 years old.

It’s rare that airline announcements truly send ripples across the world, but Delta’s plan to take a 20% stake in South American carrier LATAM has the potential to realign air travel between the U.S. and South America; between South America and Europe; between South America and the Mideast; and between South America and Australia.

  • The mega South American carrier, which has a huge presence in Brazil, Argentina, Uruguay, Peru, and Chile, will become a Delta Air Lines partner, ending its relationship with American Airlines, which had been pursuing a tighter joint venture with LATAM.
  • This continues Delta's move to acquire stakes in airlines around the world, adding to the 49% of Virgin Atlantic and of Aeromexico that it owns, along with shareholdings in Korean Air, Air France KLM, and China Eastern. (Delta will have to divest its 9% stake in Brazil's Gol to get approval for this deal.)
  • LATAM will leave the oneworld alliance, which includes American, British Airways, Iberia, Qantas and others.
  • However LATAM will not join the SkyTeam alliance - underscoring Delta CEO Ed Bastian's belief that global airline alliances haven't met their potential and provide only limited benefit to airlines and customers.

This catapults Delta from being a minor player in South America to becoming a major one, and will allow it to grow its flying out of cities like Miami with a huge Latin presence where it’s weak today. What's especially interesting, though, is how other airlines around the world will need to respond.

American Airlines is Left Without a Dance Partner

American Airlines had been pursuing a joint venture with LATAM. They had regulatory approval for anti-trust immunity to coordinate schedules and pricing and share revenue between the U.S. and South America but ran into one final, fatal blow - a ruling by the Chilean Supreme Court over competition concerns that stopped the deal from moving forward.

For its part, American says little is lost by having Delta take over this partnership – American suggests that it was generating less than $20 million a year from the relationship with LATAM, and without being able to build on the partnership between the U.S. and Chile they had limited upside going forward.

That figure seems very low considering that American relied on LATAM to feed passengers into the U.S. and onto connecting American flights, to feed passengers from smaller South American cities onto American's flights between the U.S. and South America, and to convince LATAM's frequent flyers to choose American for their U.S. domestic travels. Indeed, Delta projects its LATAM partnership will be worth a billion dollars over five years.

Today American Airlines is the largest American carrier between the U.S. and South America, however soon it will find itself without the ability to transport passengers from major cities in Brazil, Argentina and elsewhere to their final destinations. And it doesn't have many options for picking up new partners.

  • Colombia's Avianca is closely tied to United Airlines through debt. There's little opportunity to wrest away a partnership with that troubled airline.
  • That leaves low-cost carriers Gol and Azul as major airlines carrying passengers of significance. Both are Brazil-based.
  • Delta is dropping its Gol partnership, potentially creating an opening for American, but it's a modest one. Delta says it failed to attract significant passenger traffic from Gol, which is largely limited to Brazil. Still, that could help support American's Brazil operations, which are more significant than Delta's.

LATAM's Chairman Ignacio Cueto gave an interview in Spanish where he shared that American Airlines, once slated to be its closest partner, had no advance warning about the 20% stake Delta was taking.

What Will Other oneworld Airlines Do When LATAM Leaves the Alliance?

LATAM's Chairman Cueto also shared that since LATAM won’t be a part of any global alliance - it’s leaving oneworld, but won’t be joining SkyTeam - LATAM will rely on bilateral relationships. Delta won’t be its only partner.

This bolster’s Delta CEO Ed Bastian’s claim that alliances are losing relevance to airlines and to consumers, and may lead other airlines to closely scrutinize their participation in SkyTeam, oneworld, and Star Alliance with wide ranging implications. However it also leaves openings from oneworld members that previously partnered with LATAM and that aren’t named American Airlines.

Qantas, for instance, has built its Latin America strategy around partnering with LATAM. Cueto says he hopes to continue LATAM’s partnerships with British Airways, Iberia, and with Qantas.

For American Airlines customers with American Express or Chase points, by the way, this would mean likely still being able to redeem for travel on LATAM by transferring those points to British Airways even if it will no longer be possible to do so with AAdvantage miles.

A Shot Across the Bow of Qatar Airways

The most abrasive relationship in the airline industry is the one between Delta and Qatar Airways. Delta has led the charge, and brought along American and United Airlines, to lobby against big Gulf airlines Emirates, Etihad, and Qatar Airways being permitted to fly to the U.S. despite treaties with the U.A.E. and Qatar allowing them to do so.

This effort dates publicly to early 2015 and failed during both the Obama and Trump administrations. Lobbying efforts of late have focused largely on Qatar's 49% investment in Italian airline Air Italy, where U.S. carriers argue that it's in essence Qatar Airways offering flights between the U.S. and Europe - something they're permitted to do under the Open Skies treaty but also something they said they had no current intention of doing as part of putting the political issue to bed last year.

The dispute has often gotten personal. Qatar's CEO has said that Delta "flies crap airplanes" and described the reason it started service between Doha and Atlanta as "to rub sale in the wounds" of Delta. Delta, for its part, has led a public campaign which has appeared to cross into xenophobia at times and Delta’s CEO even skipped a meeting with President Trump at which the CEO of Qatar Airways was going to be present.

Qatar Airways has a pre-existing 10% stake in LATAM. Delta will have an ownership position that's twice as large. This is the only carrier in which the two airlines share a joint interest, and LATAM will be leaving the oneworld alliance of which Qatar Airways is a part. LATAM's Chairman Cueto, though promising bilateral cooperation with other airlines even that were a part of oneworld, noticeably did not list Qatar Airways as being among those.

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