Best of Travel: Post Mergers

Air Alliances Battle for the Flying Public

Mega-mergers and new alliances forged in the past six months have given Latin American business travelers a score of additional options. But as this merger era underscores, competition is fierce. The fight to fill seats with executives has shifted into high gear.
For travelers, these rapid changes in carrier groupings mean discovering greater flexibility and multiple choices with the member airlines of Star Alliance. Led by United/Continental and Lufthansa, with participation that includes US Airways and Brazil’s TAM, Star Alliance has recently lined up other major regional carriers to join the partnership. Not only does the grouping stand to benefit from the merger of Chile’s LAN Airlines with TAM, but Star Alliance Services CEO Jaan Albrecht also announced the group had reached “a major milestone” by signing up Avianca-TACA at the same time as that combo carrier’s major rival, Copa Airlines, based in Panama City.
For the industry, the consolidation drive should boost the stronger carriers and shore up fragile ones. It also heightens competition on many levels.
Until recently, OneWorld—the alliance led by American Airlines, British Airways and Spain’s Iberia—was poised to dominate the region, particularly with the participation of leading South American carrier LAN. OneWorld now is fighting to keep LAN from defecting to Star Alliance to follow merger partner TAM, Brazil’s largest airline.
Executives for LAN and TAM have indicated that the carriers will retain their distinct brands and run independent operations out of Santiago for LAN and São Paulo for TAM. But the alliance issue remains unresolved for a combined carrier that will officially be called LATAM Airline Group.
Albrecht called TAM an integral part of Star Alliance, its membership giving the members access to South America, including Brazil, with its many business and vacation destinations and an ever-larger number of its own travelers. At a press conference in November, Albrecht said Star Alliance executives planned to meet with airline representatives in both Santiago and São Paulo to “make the best proposal.”
The rapid change in the dynamics of Latin American air travel has taken many industry observers by surprise, said Raphael Bejar, who is the CEO and founder of Airsavings, a consulting firm focused on supplementary revenue and cost reduction for the industry. Bejar said the spate of merging ventures also underscored how, in one of the world’s hottest air travel markets, the alliances are at war with each other, perhaps to a greater degree than with the carriers themselves.
“No one in the industry expected such a big change to happen so quickly,” Bejar said. “With the introduction of these new airlines, Star Alliance is welcoming three of the most well-connected airlines in the region.”
While Star Alliance members will benefit from improved access to more destinations, Bejar predicted that travelers would find fewer bargains in travel. The airlines are expected to reorganize overlapping networks and cut unproductive routes, leaving travelers with fewer choices in some cases, he said.
But Bejar said the success of low-cost and start-up carriers, including Aires in Colombia and both Azul and Webjet in Brazil, will keep the bigger airlines from controlling routes and prices. “With the introduction of low-cost carriers, the battle for dominance in Latin America will definitely be an interesting one—both from an industry and a customer perspective,” Bejar said.
The addition of Avianca-TACA and Copa to Star Alliance means that global business travelers will have seamless access to the region via Avianca-TACA hubs in Bogota, San Salvador, Lima and San Jose and Copa’s hubs in Panama City.
For Avianca-TACA, flights from Madrid and Barcelona will improve connections between Europe and Bolivia, Peru, Colombia and Central America. For North American passengers, this alliance now allows direct service from Latin America to Toronto, San Francisco, Los Angeles and Dallas.
Copa’s entry into Star Alliance came as a surprise to some industry analysts, given its long-standing rivalry with Avianca-TACA.
But Copa CEO Pedro Heilbron insisted his airline would continue to battle with Avianca-TACA even though they operate in the same alliance. “Together we will be better placed to compete against growing competition in the region,” Heilbron said in an interview with Latin Trade.
“We will cooperate with each other, as US Airways does with United,” he said. “Star Alliance membership will not eliminate competition. If alliances were to exclude competitors, there would probably be no global alliances.”
Avianca-TACA chief executive Fabio Villegas echoed Heilbron’s comments. “Our goal is not to be the dominant airline in the region,” Villegas said. “Competition is necessary, and growth in Avianca-TACA is due to this.”
Competitors on Latin American routes include Lufthansa, the German carrier that restored flights between Frankfurt and Bogota in October after a lapse of eight years. Lufthansa also offers flights from Frankfurt to São Paulo, Buenos Aires and Caracas and operates nonstop service between São Paulo and Munich, where German automaker BMW has its headquarters.
With OneWorld under pressure in South America, the carriers are bolstering their presence in North America. OneWorld faces not only Star Alliance but also Skyteam, which includes Delta, Aeromexico and Air France/KLM. For instance, OneWorld member Iberia, which has finalized its merger with British Airways, will launch four weekly Madrid-Los Angeles flights and three weekly trips between Barcelona and Miami in March.
Iberia also plans to increase capacity on its service between Madrid and Chicago, New York and Boston. These additional routes make the United States the leading long-haul market for Iberia. To lure business travelers making transcontinental treks on Iberia, the airline is offering enhanced frequent-flyer benefits, including a free domestic flight for every excursion on any economy fare.
Meanwhile, the bankruptcy filing and shutdown of Mexicana de Aviación in August has opened the prospects for low-cost carriers in Mexico. Volaris, Interjet and VivaAerobus could add new domestic passengers. But after Mexicana won the right to reorganize in Mexico, protected from U.S. creditors, industry insiders told Latin Trade that a restructured Mexicana began hiring employees in November and was expected to emerge from bankruptcy as a much smaller carrier, with three dozen domestic and international destinations.
Although Aeromexico made no public comment on its rival’s bankruptcy, the only other national Mexican airline quickly reacted. Since October, it boosted the number of direct flights between Argentina and Mexico; launched new service between Mexico City, Bogota and San Jose; added a fourth Mexico City-Barcelona flight; and increased to nine its weekly flights between Mexico City and São Paulo.
Among U.S. destinations, it added flights to Chicago, Las Vegas, Los Angeles, Miami, New York and San Antonio and reestablished 45 daily code share flights with Delta.
Aeromexico was expecting to finish 2010 by having flown nearly 12 million passengers. It anticipates that it will serve 13 million air travelers in 2011.

The airports of Santiago and Panama City got the highest marks in our business travel survey; São Paulo-Guarulhos got the lowest. Find out how readers rated the region’s airports — as well as where the airlines are adding new flights or expanding service.

click for larger image

click for larger image

click for larger image

click for larger image

click for larger image

click for larger image

Filed Under: All ArticlesBest of Travel 2011FeaturesMain articles

About the Author:

RSSComments (2)

Leave a Reply | Trackback URL

  1. visit says:

    visit…

    Best of Travel: Post Mergers | Latin Trade Group…