LATAM Ends Its Domestic Codeshare With Azul

Nearly a year after announcing it, LATAM Brazil has ended its domestic codeshare with Azul Linhas Aereas. Despite these airlines being happy with the results, they are ready to move on as the recovery from the COVID-19 crisis goes on. Let’s investigate further.

Tam and Azul Airlines
Azul and LATAM Brazil have announced the end of their codeshare agreement. Photo: Getty Images

The announcements

Last night, LATAM announced the ending of the codeshare agreement. Meanwhile, Azul updated the market on its deal with LATAM Airlines Brazil and possible industry consolidation. The agreement will officially end on August 22, 2021, according to LATAM, but why will the codeshare cease?

Both carriers first announced their codeshare agreement on June 16, 2020. The two airlines’ main competitor, GOL, wasn’t too happy about it and said it was non-competitive.

It initially included 50 non-overlapping domestic routes from seven Brazilian cities. Azul offered its highly connected network (80% of its routes are uncontested domestically). Meanwhile, LATAM had the hubs, and both carriers’ complimentary fleet types and networks served the customers in the best way. The airlines also benefited, while in the context of a highly depressed market due to the COVID-19.

Fast forward to May 2021, and while Brazil is still a long way from recovering its pre-pandemic traffic figures, the codeshare doesn’t make sense anymore. Jerome Cadier, LATAM Brazil’s CEO, said in a statement,

“We are already operating all the destinations we had pre-pandemic from Guarulhos International Airport, and we’re resuming some routes from Congonhas. Additionally, we have some new destinations we will launch shortly. We’ll go from 250 daily flights in May to 400 by July.”

In this scenario, the agreement loses relevance as map routes recover their pre-pandemic levels, said LATAM.

Azul believes there will be a lot of consolidation in the region. Photo: Vincenzo Pace | Simple Flying.

There will be consolidation in Latin America

Meanwhile, Azul doesn’t seem to be too shaken up by LATAM’s decision.

Instead, the airline believes that consolidation is an essential part of the post-pandemic industry response. Azul also thinks it is in a solid position to drive that consolidation; therefore, it has hired advisors and is exploring opportunities in the region.

John Rodgerson, Azul’s CEO, said in a statement,

“The codeshare with LATAM was a unique solution in our pandemic response. We also realized that industry consolidation would be important for the post-pandemic recovery, and Azul would be a key part of any such activity. We believe the cancelation of the codeshare by LATAM is a reaction to that process.”

The airline believes it is emerging from the crisis in a leadership position in terms of liquidity. It has also closed the gap in the domestic market share. So far, in 2021, Azul is the leading domestic carrier in Brazil. It has carried 6.4 million passengers, versus 5.1 million of GOL and 4.6 million of LATAM.

LATAM Boeing 767-300ER
LATAM will boost its cargo fleet by converting ten B767-300 into freighters. Photo: Vincenzo Pace | Simple Flying

Keeping strategic alternatives

Azul’s plans remain unchanged following LATAM’s decision. The company’s management is confident that Azul is “in the best position to pursue strategic alternatives at this point in time,” added Rodgerson.

Meanwhile, LATAM believes that the domestic codeshare agreement didn’t achieve the passenger levels it hoped for in 2021.

But, the company sees a strong recovery in the domestic market for this year. LATAM hopes to have a 90% capacity by December (it currently is at 49% of 2019 levels).

With that in mind, LATAM is looking to hire 750 new pilots by the end of the year. Additionally, it will receive seven A320 aircraft to serve the domestic market, it said. Plus, last week, LATAM Airlines Group announced a 90% increase in its cargo fleet.

Are you surprised about LATAM’s decision? Let us know in the comments.