Delta Air Lines’ announcement last week of its intention to purchase a 20% stake in LATAM is a stab in the back of rival American Airlines. It also points to the Atlanta carrier’s ambition to eat, piece-by-piece, the rest of the world’s airlines.
Writes Forbes, Delta’s latest hook-up blocks American’s joint venture with LATAM, and undercuts the Texan’s South American operations. The partnership sees Delta take almost a quarter of LATAM. Its colossal network of routes throughout Brazil, Argentina and Peru awaits.
The move follows a pattern in recent years of a move by Delta to invest heavily in the world’s airlines. According to Forbes, Delta owns 49% of Virgin Atlantic and the same of Aeromexico. It also has joint ventures with Air-France-KLM, Korean Air, Virgin Australia, and China Eastern.
The partnership with Aeromexico was crucial in Delta’s bid to expand its Los Angeles sector.
Of the latest acquisition, reports CNBC, Delta’s boss Ed Bastian, said, “Our people, customers, owners and communities will all benefit from this exciting platform for future growth.”
SImple Flying has contacted Delta Air Lines for a statement but have not yet received a reply.
South America and beyond
Delta CEO Ed Bastian believes global airline alliances have not met their full potential. Furthermore, his view that oneworld and others have a limited benefit to customers appears to find backing from LATAM’s boss Enrique Cueto.
The Chilean airline will leave the oneworld alliance in the wake of Delta’s purchase, which could, in theory, urge others to consider their participation in alliances more carefully.
Delta now becomes a major player in South America. Its share of LATAM will allow it to delve into the buoyant Latin presence, predominantly in the south-eastern states of North America. The lucrative routes between cities such as Miami and Rio are there for the taking.
The acquisition of a share of LATAM is part of Delta’s plan to expand by using joint ventures with other carriers around the world. In addition to its partnerships with airlines mentioned previously, Delta is set to embark on a trans-border joint venture with Canadian airline WestJet.
In June of this year, the Canadian Competition Bureau (CCB) announced that it would not stand in the way of the venture cooked up in 2018. The partnership will see the two carriers working together. This will make the partners well placed to compete more vigorously with Air Canada, which currently has a 47% capacity share between Canada and the United States.
Foreign ownership laws applied to airline companies prevent the wholesale purchase of foreign carriers. To get around these regulations, acquisition hungry airlines are turning to the purchase of minority stakes and revenue-sharing joint ventures to bolster their market share.
American and LATAM
Delta’s $1.9Bn stake in LATAM includes a strategic upgrade of the fleet. The carrier will purchase four A350s. It will also take control of the Chilean’s purchase of 10 more of the type in the first half of the next decade.
The knife turns still further for American then. The carrier had hoped to bolster its South American network by assuming its own joint venture with LATAM. However, an eleventh-hour ruling by Chile’s Supreme Court considered American to be in breach of monopoly laws. Hence, the mace was handed to Delta.
American now faces an uphill struggle to find a new partner to help with its point-to-point routing from major cities throughout South America. However, the Texan seems not to be overly concerned about its ousting, at least in public. At the end of last month, American increased its flight frequency to three South American destinations from Miami.
At the announcement of the deal, boss Cueto, said, “This alliance with Delta strengthens our company and enhances our leadership in Latin America by providing the best connectivity through our highly complementary route networks.”