The New Face of Latin American Airline Partnerships

The new year has brought significant changes to partnerships between U.S. and Latin America-based carriers, largely fueled by Delta’s $1.9 billion investment for a 20 percent stake in Chile-based Latam Airlines. Latam is scheduled to leave the Oneworld Alliance on May 1, ending its frequent-flier agreement with American. Delta also ended its partnership with Gol after nearly a decade, revealing it sold its stake in the carrier. Then, American announced Feb. 4 it would enter into its own codeshare partnership with Gol.

Latin America has been making positive contributions to U.S.-based carriers’ balance sheets. The International Air Transport Association, or IATA, reported that Latin American carriers were expected to lose money in 2019 largely due to economic issues, but the region has been a bright spot for U.S. carriers in recent months. American, Delta, and United all cited Latin America as the top-performing international segment in the fourth quarter, based on year-over-year unit revenue growth.

Delta’s Strategy is Not New

While the size of the Latam deal caught the world’s attention, Delta has been focusing on strategic moves in Latin America for the past few years. It launched an antitrust-immune joint venture with Aeromexico in 2017, giving it a 49 percent stake in Aeromexico and permission to coordinate trans-border schedules. In addition, the carrier also has a codeshare agreement with SkyTeam partner Aerolineas Argentinas.

Before the Aeromexico deal, Delta’s market position in Latin America was not necessarily large — nor well-known.

“Delta definitely had the weakest brand position in Latin America,” Skift Airline Weekly Editor-in-Chief Madhu Unnikrishnan said.

But that has been changing, and the Latam deal could further strengthen its reach in terms of destinations and brand recognition. “By forging these partnerships with already-established Latin American carriers, Delta is going to really boost not just its network, but inbound traffic from Latin America due to the strength of those brands,” Unnikrishnan added.

Still, in an October research note, Wolfe Research analyst Hunter Keay questioned whether tie-up could stand up to American Airlines’ already-extensive network between Latin America and the key hub of Miami.

“Without meaningful growth at [Miami International Airport] to other U.S. destinations, Delta won’t be able to extract the full potential from its investment, in our opinion.”

Delta did recently announce more destinations from Miami to support the Latam deal, although it is too soon to tell the impact. It will add 13 daily, nonstop flights to Raleigh-Durham, Tampa, Orlando and Salt Lake City. With these changes, Delta will offer 41 daily, nonstop flights from Miami from U.S. airports. Delta is working to add its code on Latam flights to Colombia, Ecuador, and Peru by early this year. The carriers say the codeshare partnership will expand connectivity on up to 74 U.S. destinations and 51 in South America.

American and Gol. Strong Enough?

American Airlines’ largest partner in Latin America was by far Latam, and the airlines stopped codesharing on Jan. 31. However, American does not seem to be overly concerned about how this affects its future strategy.

During a Jan. 23 earnings call, American Airlines President Robert Isom described the airline as the “leading carrier and largest carrier between the U.S. and Latin America, and the best partner for future relationships.” He added: “We feel very good about our position in this important region and expect only to grow on our own and with partners in the coming years.”

That’s where Gol comes in. American said the partnership with the Brazilian carrier will open 20 new destinations for its customers, including Asuncion, Paraguay. It might not sound like much, but the carriers say the agreement will offer more flights between South America and the United States than other airline partnership. For its part, American offers up to 170 flights per day to 18 countries in Latin America, and is planning to ramp up service to key hubs such as Lima, Santiago and Sao Paulo.

Beyond Gol, though, American’s partnerships in the region aren’t significant. It counts limited codeshare agreements with Mexico’s Interjet and Seaborne Virgin Islands. Plus, one limiting factor of the partnership is that Gol doesn’t have reach into the U.S. beyond Miami and Orlando.

“American is going to find itself in a tough spot” if it can’t form another partnership or extend its network Unnikrishnan said. ”I think American should be worried because they will now have a vast new competitive threat from Delta, Aeromexico and Latam,” he said.

Regulator Snags

Airline partnerships in Latin America could continue to see more progress this year, depending on whether regulators finally approve a long-awaited proposed alliance between Avianca, Panama’s Copa Airlines, United Airlines, and a possible fourth partner. The airlines announced their intent to create a joint venture in November 2018, but the plan became delayed after issues including problems at Avianca after United Airlines sought to oust its chairman.

Copa Airlines CEO Pedro Heilbron said during a Feb. 13 investment call that “the intent is still to file sometime this year,” but the timing is unclear. For now, there is certainly enough action to keep an eye on.

Kristin Majcher is a Skift contributor based in Bogota.