By Marcelo Rochabrun
SAO PAULO (Reuters) – Bankrupt LATAM Airways and Avianca Holdings are dramatically retrenching their as soon as grand ambitions amid the COVID-19 pandemic, decreasing competitors in Latin America as they mull once-unthinkable cooperation with rivals.
Since May, LATAM has exited Argentina, partnered with rival Azul SA in Brazil and reduce home operations in Chile, whereas Avianca has departed Peru.
LATAM is now open to a deeper alliance with Azul, at the same time as the 2 airways often management a mixed 60% of Brazil’s home market.
The scaling again might reshape air journey in Latin America, weakening competitors regionally and driving up ticket costs whereas additionally serving to some carriers survive. The strikes present how the business is already shrinking by attrition, as airways are too cash-strapped to contemplate shopping for the competitors.
“Greater than consolidation, many airways will disappear,” mentioned Eliseo Llamazares, an aviation marketing consultant at KPMG.
Latin American governments more and more acknowledge there’s a new actuality, and have shifted their priorities to protecting native airways alive as an alternative of attracting new gamers.
Attrition has additionally occurred in Ecuador, the place TAME shut down, and in Mexico, the place Interjet has scaled again.
“If this pattern is allowed to proceed, connectivity across the area can be affected,” mentioned Peter Cerda, vice chairman for the Americas at IATA, an airline business group. “Much less connectivity means much less selection, and fewer selection often interprets into increased costs.”
All airways in Latin America face some danger of disappearing, analysts say.
Dominant LATAM and Avianca have filed for chapter safety, whereas auditors for Brazil’s Gol Linhas Aereas Inteligentes are in search of to incorporate a proper warning within the airline’s monetary statements that the service dangers disappearing.
Azul and Aeromexico have employed restructuring advisers, whereas Panama’s Copa Holdings has not flown since late March, straining its funds.
One airline that might stand to learn is Chile-based JetSMART, which is contemplating coming into Brazil’s home market.
JetSMART’s enlargement is backed by deep pockets at non-public fairness agency Indigo Companions, which additionally holds stakes in Frontier, Wizz Air and Mexico’s Volaris.
Indigo Companions founder Invoice Franke advised Reuters he expects to look into serving to finance Avianca’s restructuring. That would convey Avianca nearer to JetSMART, protecting the Colombian airline’s markets protected from competitors. Avianca declined to remark.
‘DIVIDING THE MARKET’
If JetSMART expands to Brazil, it will arrive as competitors is diminishing. Final yr, LATAM and Gol fought to maintain Azul from coming into a key Sao Paulo airport.
“JetSMART in Brazil would wreak havoc on the present gamers,” mentioned an air business government.
However the coronavirus has turned competitors right into a secondary concern, evidenced by the dearth of pushback towards the LATAM-Azul code-share.
The code-share “would have been untenable earlier than,” mentioned Carlos Ozores, an aviation marketing consultant at ICF.
The present partnership applies solely to non-overlapping routes, however LATAM mentioned it’s “open to evaluating the opportunity of the eventual future enlargement of this code-share” to overlapping routes.
“They’re dividing the marketplace for themselves,” an government at a rival airline mentioned of LATAM and Azul.
Gol CEO Paulo Kakinoff mentioned code-share agreements – wherein two or extra airways publish and market the identical flight sharing one plane – will scale back air-travel provide, “which can profit all of us.”
The LATAM-Azul partnership has led to hypothesis in regards to the future.
“It could possibly be step one for deeper integration, even a merger,” mentioned Andre Castellini, an aviation marketing consultant at Bain & Firm.
LATAM and Azul deny merger talks, however a supply acquainted with the code-share talks mentioned it’s “attainable.”
Greater than mergers, so-called joint enterprise agreements are in vogue. Just lately, LATAM signed one with Delta Air Strains Inc , whereas Avianca, Copa and United have introduced a rival one.
The agreements permit for deep route integration, with out all of the bills and crimson tape of an precise merger.
LATAM was born out of the troublesome merger of Chile’s LAN and Brazil’s TAM, which saddled the brand new service with huge bills.
Not way back, LATAM and Avianca had their planes in nearly each nook in Latin America, controlling a mixed 60% of the home markets in Colombia, Chile and Peru.
However Avianca pulled out of Peru in May, calling the home market unprofitable, surrendering to LATAM, which has dominated journey there because the 1990s.
LATAM, in flip, departed Argentina earlier this month after shedding an amassed $350 million since 2012.
What it exhibits is airways keen to give up market share that they fought arduous in regular instances to keep up.
“To speak about competitors on this context is senseless, this can be a combat for survival,” Bain’s Castellini mentioned. “Airways are going to prioritize their survival over their market share.”
(Reporting by Marcelo Rochabrun in Sao Paulo; Further reporting by Tracy Rucinski in Chicago and Tatiana Bautzer in Sao Paulo; Enhancing by Christian Plumb and Matthew Lewis)