Delta Air Lines competing strongly for the South American market
A surprise US$1.9 billion investment by Delta Air Lines in LATAM Airlines Group is likely to fire up competition in South America as the weakest U.S. carrier in the region joins up with the strongest homegrown player.
Atlanta-based Delta had long struggled to get a better foothold in the Latin American market, lagging United Airlines and American Airlines, whose longtime partnership with LATAM gave it a comfortable lead.
With the Delta deal, that reigning power couple has split.
Dominance in Latin America — an air travel market expected to double in the next decade — has been fiercely disputed by the top three U.S. carriers for good reason. Eight of every 10 passengers in Latin America traveling outside the region are bound for North America, according to industry group ALTA.
Following its breakup with Chile-based LATAM last month, American Airlines quickly announced new flights next year from Miami to Chile and Peru — destinations where the two had been coordinating their routes with regulatory approval.
”This shows you that the (American-LATAM) partnership ultimately ended up undermining supply,“ said Carlos Ozores, a principal at consulting company ICF. ”There was no competition because these were two carriers that coordinated their fares and worked as one.“
American said it had ”expanded routes and lowered prices“ as a result of its coordination with LATAM in Chile and Peru.
The combined strength of LATAM and American ultimately doomed their partnership, as Chile’s top court ruled in May that they could not expand their cooperation on travel to the United States.
By contrast, Delta’s historic weakness in the region has become a distinct advantage, allowing it to leapfrog competitors without facing as much regulatory scrutiny.
”American and LATAM had a number of overlaps that created issues,“ Delta Chief Legal Officer Peter Carter told investors last month. ”And we just don’t have that here.“
LATAM declined to comment.
American said in a statement it ”remains the largest U.S. carrier to both Latin and South America and we look forward to competing and growing in this region of the world.“
American also announced an additional daily flight from Miami to Sao Paulo starting in 2020, a market where it did not have the level of coordination as in Chile or Peru. This will create stiffer competition, especially in Miami, a hub for both LATAM and American and a top destination for Latin Americans.
”It’s a very risky move because Delta is not very strong in Miami and American is very strong there,” said Luis Felipe Oliveira, ALTA’s executive director.
Delta has worked for much of the past decade to improve its standing in Latin America, investing in Brazil’s Gol Linhas Aereas in 2011 and Grupo Aeromexico the next year. In 2016, it made an offer for Colombia’s Avianca Holdings , but was rebuffed in favor of United.
In recent years, Delta has grown frustrated with the Gol partnership, which did little for its South American push beyond Brazil. LATAM and Avianca have broader regional ambitions, investing in domestic airlines outside their home markets.