Two of Latin America's largest carriers LAN Airlines and TAM Linhas Aereas this week announced plans to create the largest airline in South America, planning to complete the merger by mid 2011. The Hub analyses this mega merger and the ramifications for the respective alliances.
oneworld member LAN Airlines and Star Alliance member TAM plan to create a single parent company LATAM Airlines making it the largest carrier in South America. Currently they are the only carriers in Latin America that are part of the major alliances. The two carriers will continue to operate separate networks, however, they have indicated that they will operate a unified FFP (Frequent Flyer Programme) which raises the question of how the two carriers will achieve this as members of separate alliances.
LAN AIRLINES AND TAM NETWORK POSITION
LAN currently has major operations in four countries, Chile, Peru, Argentina and Ecuador, whereas TAM has its main operation in Brazil with its Mercosur subsidiary operating in Paraguay. The table below illustrates the respective market share of LAN, TAM and its subsidiaries, as well as its current combined scheduled weekly seat share in key Latin American markets.
|
Country |
LAN Airlines Market Share |
TAM Airlines Market Share |
Combined Market Share |
|
Brazil |
7% |
41% |
48% |
|
Peru |
67% |
1% |
68% |
|
Chile |
69% |
2% |
71% |
|
Ecuador |
23% |
- |
23% |
|
Argentina |
21% |
5% |
26% |
|
Paraguay |
- |
60% |
60% |
Source Flightbase 14-20 November 2010
In terms of the overall picture in South America, the table below illustrates their leading positions in the continent with scheduled weekly seat capacity from South America to all markets.
|
Carrier |
Weekly Seats |
Destinations |
Market Share |
|
TAM Linhas Aereas |
966,352 |
104 |
24% |
|
GOL |
892,812 |
62 |
23% |
|
LAN |
421,061 |
54 |
11% |
|
Avianca |
260,656 |
44 |
7% |
|
Aerolineas Argentinas |
202,310 |
52 |
5% |
|
Azul |
123,904 |
22 |
3% |
|
Copa Airlines |
117,750 |
17 |
3% |
|
TACA |
112,586 |
74 |
3% |
|
Aires |
106,281 |
29 |
2% |
|
Others |
886,286 |
22% |
|
|
Total |
3,949,261 |
100% |
Source Flightbase 14-20 Nov 2010
The tables illustrate that the combined entity has a significant presence in key markets in South America.
TAM and LAN currently have a 35% share of the total South American market. LAN is the largest carrier in Peru with 67% of the scheduled seat capacity, whilst it is the third largest operator in Ecuador with 15% of the market.In Argentina LAN operates 21% of all scheduled flights, second only to Aerolineas Argentinas. In Paraguay, TAM Mercosur operates 60% of all scheduled seats and is the largest carrier. It will be the dominant carrier in Brazil, which has the highest GDP in South America and has an important presence in Argentina, which has the second highest GDP in South America whilst Peru, Chile and Ecuador are five, sixth and seventh in terms of GDP in South America according to the CIA World Factbook for 2009.
SYNERGIES
With airline mergers becoming commonplace around the globe (United Airlines and Continental in the US, BA and Iberia in Europe) the LAN and TAM announcement follows these developments and is a response to the merger which was agreed earlier in the year between Colombian national airline, Avianca, and TACA, the national airline of El Salvador.
As well as creating a potentially dominant carrier in Latin America, the two airlines will benefit from the synergies that will exist. LAN and TAM will be able to maximise respective scheduling and capacity on key Latin America markets, such as Sao Paulo to Santiago, where both carriers compete on a market that from June 2009-10 has seen over 222,000 O+D passengers fly the sector. Lima to Sao Paulo is another route where LAN and TAM currently compete in a market where over 120,000 passengers flew during the same time period however TACA currently has a 41% share of this market. The merger will help optimise resources and schedules to put pressure on its competitors.
The respective airlines' fleets should not cause too many operational issues. Both carriers operate narrowbody A319 and A320 jets, as well as widebody A340 and B777 equipment. TAM also has Embraer and ATR equipment at its disposal, with LAN's smallest equipment the A318. A merger could allow LAN to operate TAM equipment on thinner regional sectors.
INTERCONTINENTAL ROUTES
The two carriers operate 234 weekly flights to North America and Europe from South America with duplication in North America on routes to Miami and JFK, whilst LAN also serves Los Angeles, San Francisco and Toronto. Both airlines also serve Madrid with a combined total of 33 weekly flights, with TAM having the larger European network with services to London Heathrow, Milan Malpensa, Charles de Gaulle and Frankfurt. It should be noted that LAN also serves Charles de Gaulle and Frankfurt as an extension of its A340 operation to Madrid. LAN also serves Auckland and Pepeete in French Polynesia in Asia, a market where TAM has no presence.
ALLIANCE POSITION
The alliance position of the respective airlines is interesting and whilst the airlines have stipulated that they will operate a reciprocal FFP, the oneworld and Star Alliance will be keen to protect their interests in Latin America with both alliances having no other presence in Latin America. Much as Skyteam and oneworld battled for control of JAL earlier this year, next year could see a similar battle ensue for LATAM Airlines.
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