Delta Air Lines Is Slowly Buying Up The World’s Airlines

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.

Delta Air Lines jet take-off
Delta spends $1.9Bn on 20% stake of LATAM. Photo: Airbus press release

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.

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The partnership with Aeromexico was crucial in Delta’s bid to expand its Los Angeles sector.

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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.

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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 Air lines jet take-off
World air alliances could be a thing of the past if Delta steps up its “joint ventures”. Photo: Airbus press release

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.

Delta Air Lines A350 on taxiway
Four A350s to be purchased as part of Delta’s chunk of LATAM. Photo: Airbus press release

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.”

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Dennis

And this is how US companies in general expand and why they don’t deserve any respect. Rather than through actual hard work, innovation and nurturing their businesses, they utilize investment money to simply buy up others that have already done so. After that? Well you know the story -these well respected companies with good values and respected traditions go down the drain.

Kevin

So you would argue its best to blow cash trying to 1) open new routes 2) buy more planes 3) go into a route fare war with entrenched and established carriers and 4) expand crew and airport resources? This is probably why you do not run an airline. Working smarter and not harder is the game. Also protecting revenue of shareholders is what keeps you employed. The only logical way for Delta to get into a decades-established South American game is to buy arguably the airline with the best reputation in the region. Mind you, Delta has done all of… Read more »

Nicholas Mackenzie-Rowe

It is a shame then that in that respect Delta has a terrible reputation in Europe. Largely because it was the US airline left to pick up the dregs when setting up Skyteam. No wonder Bastian whines about alliances.

Dennis

@Kevin, I don’t disagree with you. Obviously from an economical viewpoint, that is the correct move. I’m just saying that it’s not something to brag about. Additionally, it irks me that they want this corporate structure until they go bankrupt and then beg the government for help (and AA, DL, and UA are all guilty). The financial position of the company is apparently the only thing where success is measured and shareholders are the only ones to be appeased. But that reflects the US as a whole – no history, no contribution to the world (apart from money and war).… Read more »

trent

Kevin, what he is saying is this is a good decision, just all things US suck apparently.

Trent

American late stage capitalism has a lot wrong with it…a lot. However to say US companies don’t deserve any respect is a little overblown. You’re very much correct pointing out the investment capital start-ups that rely on flash, rather than good bones. Many modern start-up cooperate darlings have NEVER made money, and rely on fresh infusions to even stay afloat. But this is hardly a US issue. Also, many mature US cooperation, Delta included, are hyper successful, and solidly built. Delta buying their way into a new market with cash is hardly an issue. Delta makes cash hand over foot,… Read more »

Dennis

“Hyper successful and solidly built” – didn’t they file for bankruptcy a few times? And guess what? If you or I file for bankruptcy, the government is not going to come and help… unlike these companies. Unfortunately, these “mature” US corporations (apparently the ones older than 5 years old – because you know, no history and all) only seek success with acquisitions and takeovers. It’s the only way they can compete – by buying the competition! (and thus reducing choice, value and service for consumers). But who cares, as long as shareholders are happy!

Trent

Yeah, I’d say 3.9 billion in net income last year was hyper successful, but maybe you disagree. In a tightly controlled and regulated market, acquisitions are a smart expansion idea. For instance, Southwest acquiring AirTran a decade ago. SWA wanted to expand in key east coast markets, especially Atlanta, but couldn’t because slots are tighly regulated. It had the cash, and bought Airtran, gained access to Atlanta, Washington, and bolstered NYC capacity. Not all expansion is bad. You’re describing a real issue, powerful shareholers making business decisions based on quarterly success only, and fitting the main subject of this story,… Read more »

Bruce

Join tDennis I fail to see the point you are trying to make.Its called a business venture,how do you think WestJet was created.Making a sweeping statement like the US has no history and has only contributed to war is a childish and frankly naïve statement….

Drew

I’m not sure how well this will work out for Delta. While it may seem brilliant, South America’s economy has never been a solid one. If the US and EU go into recession, many south American economies suffer much worse. Also, Delta purchased it’s own refinery several years back to produce their own fuel and was hailed as a brilliant, strategic move. But it never made money, lost millions, and Delta is trying to unload it. While they will see benefits of this 20% acquisition, outside forces leave it very vulnerable. This is one reason why airlines prefer strong partnerships… Read more »

Kevin

You do have a point. Although saying that Delta will hub out of Miami is a stretch. Maybe focus city at best out of MIA. Ft. Lauderdale you could argue makes more sense, however it is too far north to hub out of and is both too small and lacks sufficient land to expand on to make it viable.

Chuck

It’s one thing to buy into another carrier, the hard part is keeping the alignment working for both parties. Also, the alignment has to be beneficial for the CUSTOMER as well. As an example, I attempted to fly from the US to London via JFK where Virgin Atlantic has a code share with Delta. When it came time to select seats on the VA legs, I was directed to another web site. If you have a code share, the entire process needs to be SEAMLESS!! I got so frustrated, I just gave up on the VA connection. I ended up… Read more »

Sean

Delta has worked hard to improve the process behind the scenes for the scenario you describe. Delta does not wholly own these companies so at best all it can do is try to influence them to align best practices etc. It’s a process that is slowly improving.

Phil

Why do I get the vibe that this will be another Etihad or Swissair fiasco?