Delta Air Lines Completes LATAM Acquisition

Delta Air Lines has completed its purchase of a 20% stake in LATAM, wrapping up one of the surprise aviation deals of 2019. LATAM is a member of Oneworld and a bedfellow with Delta’s arch-rival, American Airlines. But this deal has turned those cozy relationships on their heads.

Delta has finalized its 20% stake in LATAM. Photo: Delta Air Lines via Flickr.

Deal is part of a wider strategy by Delta

The finalization of the deal was reported yesterday in Miles to Memories. As that report notes, the Delta / LATAM deal was part of a wider strategy by Delta Air Lines to make equity investments in key airlines around the world.

In a statement, Delta Air Lines Executive Vice President Steve Sear said;

Equity investments like this help create alignment within our partnerships as we bring together our brands, enabling us to provide the very best service and reliability for our shared customers.”

A whiff of opportunism

The Delta Air Lines buy-in was completed reasonably swiftly. In September 2019, Delta caught many by surprise when it announced that it was taking a 20% stake in LATAM at a cost of USD$1.9 billion.

At the time Delta Air Lines said the deal would open growth opportunities for both itself and LATAM whilst offering their customers a wider choice of destinations. But there was a whiff of opportunism in Delta’s decision to take a stake in LATAM.

Delta stepped into the breach when the proposed LATAM / American Airlines deal was rejected. Photo: Tomas Del Coro via Flickr.

In May 2019, Chile knocked back a proposed deepening of the existing relationship between American Airlines and LATAM, citing antitrust concerns. That deal, which also involved British Airways and Iberia had the potential to significantly alter the international aviation landscape between North and South America.

The refusal of that deal, which had been years in the making, threw longer-term strategic plans into disarray, creating a vacuum into which Delta Air Lines swiftly stepped.

A collapse of traditional alliances

Following the September announcement of Delta’s proposed buy-in at LATAM, several long term alliances forged between LATAM and other airlines fell by the wayside. Shortly after that September announcement, LATAM said it would quit Oneword (set to take effect from 20 October 2020). LATAM’s exit from Oneworld leaves the faltering global airline alliance with a big hole in its coverage –  South America.

LATAM’s relationship with American Airlines has collapsed. Photo: Nathan Coats via Wikimedia Commons.

LATAM’s relationship with American Airlines, a foundation member of Oneworld,  has also collapsed. The Dallas based airline has traditionally enjoyed a competitive advantage in South America given the depth and breadth of its route network there. Between it and LATAM, they had much of the market flying between the two American continents wrapped up. But early in December, LATAM signed new codeshare agreements with Delta and confirmed it was ending its codeshare agreements with American Airlines on 31 January 2020.

American’s loss is Delta’s gain

American Airlines’ loss is Delta’s gain. Delta has announced it will begin codesharing with certain LATAM affiliates in Colombia, Peru and Ecuador in the first quarter of 2020. In a statement, a Delta Air Lines spokesperson said;

“The codeshare will offer customers increased connectivity between up to 74 onward destinations in the United States and up to 51 onward connections in South America.”

Between Delta and LATAM, passengers will have access to up to 435 destinations around the world.

Final thoughts

The deal is a significant coup for Delta Air Lines. In one transaction, the airline significantly extends its reach into South America and gains a financial stake in that region’s premier (and profitable) airline. 

It deals a significant blow to rival American Airlines. The repercussions of that blow are stepped up when you consider American Airlines has been the dominant US carrier in South America. Finally, Delta’s financial interest in LATAM raises the delicious possibility of LATAM joining SkyTeam, a move that would significantly alter the global airline alliance playing fields.

What could possibly go wrong?