What Are The Implications Of An American & LATAM Joint Venture?

There are several levels of cooperation airlines can have, ranging from interline agreements to alliances to codeshares to joint ventures. Over the past few years we’ve seen a trend where the alliances have become less of a priority, and joint ventures have become more of a priority.

Why is the significance of the major alliances decreasing? Because while they were a fad for a while, nowadays the alliances have so many members that airlines can’t always add that much value for one another. Delta doesn’t issue you elite qualifying miles for flights on Korean Air, even though they’re both part of SkyTeam. And Qatar Airways is constantly threatening to leave oneworld over their battle with American.

Joint ventures are much more serious partnerships, as they truly align the goals of two airlines. This allows the airlines to coordinate schedules and fares, and involves full revenue sharing between airlines.

American already has several joint ventures. These include:

  • With British Airways, Finnair, and Iberia, between the US and Europe
  • With Japan Airlines, between the US and Asia
  • With Qantas, between the US and Australia/New Zealand

If American gets their way, it looks like we’ll soon be able to add another airline to the list. American has announced their intentions to form a joint venture with LATAM, the parent company of LAN & TAM airlines.

American-1 American-2

This joint venture would cover travel from the US and Canada to six South American countries — Brazil, Chile, Colombia, Paraguay, Peru and Uruguay.

TAM-777
TAM 777

Here are what the airlines’ CEOs had to say about the joint venture proposal:

“When great airlines can work together, customers win with more choices for when and how they travel,” said Doug Parker, chairman and CEO of American Airlines. “Customers will gain seamless access to more frequent and convenient schedule options than either carrier could offer individually. In the eight countries covered by this new joint business agreement, customers will have access to nearly 330 destinations, including 100 more South American destinations than American’s network serves today.”

Enrique Cueto, CEO of LATAM Airlines Group added, “We’re bringing the United States, Canada and South America closer together than ever before, by providing both American and LATAM customers even greater benefits. This is a positive step in offering them the best connecting network in North and South America and it increases the possibility of adding new destinations to our networks in the future.”

American-787
American 787

The press release claims that a joint business would translate to the following benefits for consumers:

If approved, the JB will enhance the existing strategic partnership between American and LATAM allowing closer commercial cooperation that will provide significant benefits for consumers.  They include:

  • Expanded network offerings, with access to more routes, frequencies and destinations
  • More competitive fares
  • Increased choices for customers
  • Seamless connectivity

It’s certainly true that a joint venture makes the travel experience more seamless and also can expand network offerings and create better frequencies.

But the flip side is that this doesn’t create more competitive fares. Right now American competes on several routes with LAN and TAM. Just to name a few routes out of Miami, American and LATAM both fly to Bogota, Lima, Rio de Janeiro, Santiago, and Sao Paulo. While they have a partnership, they offer different fares, meaning they’re still competing with one another. If they get a joint business, prices will be fixed on many routes. Add in the fact that they’d have a monopoly on many routes, and there’s no way it would drive down prices.

If this joint business were approved, chances are that the government would make them give up some frequencies/routes to competitors, as is generally the case where a joint business would lead to a monopoly in a market.

The good news is that American often has great premium cabin fares to Latin America, and those would be valid on LATAM if this joint business goes through. For example, I’m soon traveling to Bogota on a cheap American business class fare, which I’m routing through New York and Miami.

If this joint business were already in place, I’d be able to fly LAN in a flat bed business class product on that last segment, rather than an American 737. Then again, if the joint business were already in place, that fare might not exist. 😉

LAN-Business-Class
LAN’s 767 business class

Bottom line

Joint ventures are a double edged sword for consumers. On one hand they give consumers more flight options when booking a ticket, and also improve the schedules, frequencies, and routes airlines offer. On the other hand, they almost invariably lead to fare hikes, as it’s essentially like eliminating a competitor from the market.

I’m curious to see if this proposal gets regulatory approval. American is already by far the strongest US carrier to Latin America, so when they combine with the region’s strongest carrier it would create a monopoly in many markets. So while it may be approved, I’m willing to guess the two airlines would have to make some compromises, in the form of giving slots, routes, etc., to competitors.

What do you make of the proposed joint business between American and LATAM?

Comments

  1. Sounds like a massive loss for customers. Fares will be higher, capacity/frequency might be cut, incentives to improve product will decrease.

    Just because Brazil is a bloodbath right now and AA is flying 77Ws with gigantic premium cabins (half the plane basically) full of non-revs and on cheap tickets doesn’t mean they should get to do this.

  2. LATAM announced today a JV with BA and IB as well, for the South America-Europe routes.

    We, Brazilian consumers, will be screwed.

    The euphemism “More competitive fares” in the release sounds as true as when airlines announce “enhancements” in FF programs…

  3. This needs to end. The JVA with Europe was originally justified on reasons that no longer apply after massive consolidation. It should be rescinded and the LATAM proposal scrapped. The minimized competition on many routes is ridiculous.

  4. Since AA/LATAM are in the same oneworld alliance, connections would already go smoothly. Not sure if it’ll be any better with a joint venture. Either way, AA/LATAM already controls a large number of routes from US/Canada to South America.

  5. LATAM is already One world and you can redeem miles and purchase tickets for most routed on aa.com so how is this any different and beneficial? This is just retarded.

  6. I see no way that this is good for customers. AA is already very strong in South America as-is. This may be one of the few times where I’ll probably side with DL/UA against AA.

  7. You’re contradicting yourself, and common sense/logic…

    “On the other hand, [joint ventures] almost invariably lead to fare hikes, as it’s essentially like eliminating a competitor from the market.

    “The good news is that American often has great premium cabin fares to Latin America, and those would be valid on LATAM if this joint business goes through.”

    What do American’s current “great premium cabin fares” have to do with anything? Those fare may or may not remain desirable in the future regardless (always unknowns in the future) and the odds of the fares not increasing with a JV are certainly low.

  8. They can brag that it’s a win win for customers like they always do… but as always it turns out it means less competition and higher fares.

  9. Well one thing is for sure~ it will be good for AA in the short to medium term, but not in the long term. The current AA management is spectacularly alienating its loyal customer base in so many areas of its business, particularly AAdvantage (should be renamed DisAAdvantage) that should the good times go belly-up, the base of loyal customers will have been decimated. This is ‘fair weather’ management IMO; they do not have the nous to survive bad times which of course lurk somewhere in the economic cycle, as sure as the sun will rise tomorrow.

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