Last week, the Department of Transportation (DoT) tentatively approved Delta Air Lines and LATAM Airlines Group Joint Venture Agreement (JV). Nonetheless, the DoT expressed several concerns regarding the partnership and the challenges it might face to succeed.

The partnership

Delta and LATAM’s JV and their application for antitrust immunity were submitted on July 8, 2020. The proposed partnership would be a profit and loss-sharing alliance that covers all nonstop flights between North America (the United States and Canada) and South America (Brazil, Chile, Colombia, Paraguay, Peru, and Uruguay, specifically).

Both airlines aim to maintain the JV Agreement for a minimum period of 15 years. According to the operators, this partnership will be pro-competitive and pro-consumer. It will “align Delta’s and LATAM’s incentives to provide more flights and lower fares between North America and the South American region, enabling Delta and LATAM to offer the traveling public a more attractive and complete network than either carrier could offer on its own.”

Overall, the Joint Venture between both airlines would cover up to 7,000 city-pair markets; provide new or expanded service on at least 18 non-stop routes; provide approximately US$460 million in estimated annual consumer benefits; optimize connectivity between Delta’s and LATAM’s hub networks; lower prices; create an immunized network to compete against American Airlines and United Airlines networks in the region; optimize aircraft utilization, enhance schedules, and lower costs.

While the DoT tentatively approved the JV, it did outline several critical remedies and conditions. Among these remedies are that both airlines must maintain their interline agreements with third parties, remove exclusivity provisions that would limit either of the airlines from engaging in a business relationship with another carrier, and more.

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The areas of concern

Both airlines have agreed to balance their growth under the Joint Venture and have provisions in place to enforce that.

Nonetheless, the DoT has identified several areas of concern, mainly arising from LATAM’s current recovery and Chapter 11 proceedings.

According to the DoT, the uncertainties mainly arise from the extensive LATAM bankruptcy process between 2020 and 2022 (the US bankruptcy court approved LATAM’s Plan of Reorganization earlier this month); the traffic resumption, and growth during and post-COVID; and questions regarding continued consolidation of carriers in South America.

While not mentioning any carrier in particular, the DoT is worried about the consolidation tendencies in the region. Last month, Avianca announced it will acquire Viva Colombia and Viva Peru, and the three would operate separately under the same holding. A week later, Avianca and GOL’s investors announced Abra Group Limited, an airline group that will own these carriers, becoming the largest entity of the type in Latin America. Currently, LATAM Airlines Group is the largest company in the region.

Concerns about Delta?

The DoT is not only concerned about LATAM Airlines and the impact the JV could have in its recovery in the US-South American market. It also pointed out one specific area of concern regarding Delta Air Lines.

The DoT wrote,

“Furthermore, since the time of the application, several carriers have announced significant expansions in their Miami presence, including Frontier, JetBlue, Spirit, and Southwest, potentially complicating Delta’s plans for a Miami hub.”

According to Delta and LATAM, the proposed JV would provide scale and synergies, allowing them to offer additional competition at Miami International Airport, the largest gateway to South America. Miami accounts for 32.5% of the traffic to Brazil, Chile, Colombia, Paraguay, Peru, and Uruguay.

What do you think about the proposed JV between Delta and LATAM? Let us know in the comments below.