After American Airlines’ (A1G) (AAL) proposed venture with Chile’s LATAM Airlines Group was stopped in its tracks, in a true soap opera style, the U.S. carrier may once again be courting Brazilian low-cost carrier GOL Linhas Aereas Inteligentes to counter rival Delta Air Lines’ deal and continue on its South America strategy.
American Airlines (A1G) (AAL) and GOL, Brazil’s second-largest carrier, are negotiating a partnership that could “integrate flights between the two airlines in Latin America”, according to a report in Brazil’s Valor Economico, which cited sources familiar with the matter. The two companies have reportedly been in talks since September 26, 2019, the same date that Delta struck a deal with Chilean airline LATAM, the Brazilian newspaper writes.
In a surprising move, on September 26, 2019, Delta announced it will invest $1.9 billion for a 20% stake in LATAM and invest another $350 million to support the establishment of a strategic partnership between the two airlines. As part of the deal, Delta is set to acquire four Airbus A350XWB aircraft from LATAM as well as assume the Chilean carrier’s commitment to purchase 10 additional A350s to be delivered starting from 2020 through 2025.
Severing ties
Here is where things get interesting. The new partnership between Delta and LATAM could potentially lead to a reshuffle within airline alliances: Delta is a founding member of the SkyTeam alliance, while American Airlines (A1G) (AAL) is a founding member of Oneworld. Due to the conflict of interest, LATAM will be exiting Oneworld, according to an official statement, and thus, severing ties with its code-share partner American Airlines (A1G) (AAL) .
At the same time, Delta is cutting off ties with none other than GOL, having subsequently sold its 9% stake in the Brazilian carrier, as the company’s latest quarterly results indicate. American once had a code-share agreement with GOL before Delta bought a minority stake in the airline in 2011, thus it would only make sense for the U.S. carrier to renew its relationship with the Brazilian airline in light of Delta-LATAM tie up.
“We’re always talking to potential partners as we grow the world’s largest network,” an American Airlines (A1G) (AAL) spokeswoman was quoted as saying by The Dallas Morning News. “We’ll continue to seek partnerships that make sense for us and our customers”.
Lining up for LATAM
It must be a bitter pill to swallow for American, which had been working on a joint venture with LATAM, along with British Airways and Iberia, since 2016. Earlier this year, in May 2019, Chile’s Supreme Court rejected a proposed route deal between the four Oneworld members due to antitrust concerns, Reuters reported at the time.
“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,” Doug Parker, former chairman and CEO of American Airlines (A1G) (AAL) , stated in a news release initially announcing the proposed joint venture.
Now that Delta has stepped in to fill the gap, the company says its strategic partnership with LATAM will allow the two airlines to be the strongest competitor in five of the top six Latin American markets from the U.S. The two carriers plan to serve 435 destinations worldwide and carry more passengers between North America and Latin America “than any other partnership”, according to an official press release. Duly noted, this deal is still “subject to customary closing conditions and all required governmental and regulatory approvals, including antitrust immunity”.
Whether Delta’s plans take flight or not, its proposed partnership with LATAM is not the first deal the U.S. carrier has struck in Latin America. In 2017, Delta entered into a joint cooperation agreement on transborder flights with its SkyTeam partner Aeromexico and currently holds a 49% stake in Grupo Aeromexico, the parent company of the Mexican flag carrier.