LATAM Takes a Risky Leap Into Delta’s Arms


There has been a lot of discussion about what a great coup it has been for Delta to snatch LATAM away from American, but from LATAM’s perspective, things aren’t quite as positive. For LATAM, this is a monumental change that will not only see the airline leave American for Delta, but it will also mean a transition from being a member of oneworld to becoming an alliance-less vagrant. There is a lot of risk here for the airline, primarily from a commercial perspective.

The Network Mismatch

The root of the issue lies in the network, so let’s start there. In the US, LATAM has put nearly all of its eggs in Miami’s basket. Here’s a map of the routes currently served from the US.

Maps generated by the Great Circle Mapper – copyright © Karl L. Swartz

In the last few years, LATAM has dropped service to San Francisco, Washington/Dulles, and Toronto so that it now only serves Boston, New York/JFK, Los Angeles, Orlando, and most importantly, Miami, in the US and Canada. Why? Well, these cities are the ones that can support the most local traffic from Latin America. It’s where LATAM can do best.

Boston has a relatively new flight to Sao Paulo which seems like an experiment. Brazilians have an unhealthy love for Disney and Orlando, so that explains the Sao Paulo flight from there. The Lima flight may seem more of an outlier, but it’s on an A320 so there is limited risk. It also gives people in the north of Brazil easier connections. Los Angeles has 12 a week to Lima and 5 to Santiago. That’s good for inbound tourists as well as visiting friends and relatives. And it fees people on to the West Coast. Then there’s JFK which surprisingly only has service to four cities on LATAM. I figured that with the huge Latin American population there, LATAM would serve more, but I was wrong.

That leaves us with Miami, and that is LATAM’s primary focus in the US. LATAM serves 10 cities from Miami, though keep in mind that some of these are only flown once or twice a week. In addition, however, LATAM operates a cargo hub at the airport further bulking up its presence. Miami is the unofficial capital of Latin America, and the amount of traffic that goes between Miami and everything south is staggering. The reason for LATAM’s reliance on Miami is clearly local, but the presence of American enhanced it.

When LATAM partnered with American, it received the benefit of having a connecting hub where it could transfer people from Miami to destinations all over the US and beyond. The flights existed because of the local demand, but filling empty seats with connections helped to strengthen those flights and allowed for more frequencies.

That now disappears.

It’s not as simple as just saying, “well, ok, we’ll move our flights to Atlanta and connect to Delta there.” While I don’t doubt that flights to Atlanta will begin, those Miami flights are there for the local market. LATAM can’t move them to Atlanta. So what’s the option?

Delta has said it’ll build up in Miami. Joe Esposito, Delta’s SVP of Network Planning, told Ned Russell at TPG “We want to make sure we can connect our customers in Miami. We will realign our network to connect there.”

The Revenue Problem

This means Delta will be growing in Miami and adding connections to the most important markets for LATAM, but that is going to require a lot of new capacity to flood the market. For its part, American won’t back down and is already ramping up in anticipation of losing LATAM. It has announced new frequencies from Miami to Lima, Santiago, and Sao Paulo. When Delta rolls out domestic operations, Miami is going to become a war zone. (I mean economically… it’s been an operational war zone that haunts the souls of all travelers for many years.)

Fare pressure, massive capacity increases, and further crowding in Miami doesn’t sound like the most brilliant plan for LATAM’s ongoing success. On top of that, American has a much more robust sales capacity in Miami compared to Delta, so LATAM is going to have to rely on its own organization even more. Why would LATAM bother getting itself into this mess? Cash, for one. But there’s more to it than that.

Cash Goes Up, Fleet Goes Down

Delta is buying 20 percent of LATAM for $1.9 billion, but it’s the two sub-plots that are more interesting. As part of this deal, Delta will invest another $350 million into LATAM’s operation. It will also take 4 of LATAM’s A350s that it flies today along with 10 future orders. This will give LATAM cash and get it out of its commitment to buy more aircraft than it needs.

Is LATAM so desperate for cash that it is willing to forgo a better commercial situation? It may not be that simple.

Remember, there’s the issue of the joint venture. LATAM and American had been working on their joint venture for a long time, but when the Chilean courts ruled that they couldn’t implement it in Chile, that hurt the prospects for the deal overall. They were still working on trying to implement it, but LATAM started looking elsewhere.

I’d say it’s quite telling that from all accounts, LATAM never even gave American a chance to counter. Then again, that could be simply because as I understand it, the relationship had soured. Things appear to have been so bad that it’s not even clear that LATAM even told American what was happening after the deal was done. I’ve heard it may have actually been communicated through a third party.

Weak Financials

So which is it? Was it the relationship fraying and the joint venture becoming problematic? Or was it the desire for cold, hard cash?

For 2018, LATAM earned a very slim net margin of 1.8 percent. Believe it or not, that’s an increase over the two prior years. But for the first half of this year, LATAM’s operating margin slipped down to 2.5 percent. That was off from 6.4 percent in the first half of last year. It had a negative net margin which widened slightly year-over-year to -2.5 percent. The airline’s cash position has remained steady, but its fleet is growing from 310 at the end of last year to 328 at the end of this year, and aircraft are expensive.

While there aren’t warning signs suggesting LATAM is in huge immediate trouble, the cash was certainly going to come in handy. In the end, Delta dangled enough carrots to convince LATAM that it was worth making the switch.

From Delta’s perspective, this is a win. But from LATAM’s perspective it’s decidedly mixed. It’s going to be costly to get the support LATAM needs in Miami, and all parties appear positioned for a long, bloody fight.

Updated 10/1 @ 1113a PT to add Boston service

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54 comments on “LATAM Takes a Risky Leap Into Delta’s Arms

  1. Miami’s airport has been a nightmare for decades. Does it even have the slots and gates to handle the kind of expansions, on multiple fronts, you’re describing?

    1. MIA isn’t a slot restricted airport, so that’s not an issue. Gates on the other hand could be a problem, but I don’t think Delta needs that many extras. They’re not going to build a hub there, just add more flights to key markets.

    2. Waypoint – I imagine we’re going to hear something about that sooner rather than later. Delta must know that it can grow there or it wouldn’t have done this.

      1. LATAM uses the gates in Terminal J, Delta is in Terminal H, so both are connected behind security so those connecting from Delta to LATAM can do so behind security. With AA, the connecting passengers would have to circle the airport via the second (walking only) or third levels (moving walkways or walking) to LATAM.

        International arriving passengers that will now connect to Delta will have an easier time as they can easily clear customs on the third level and go through security right away. Their luggage can still be dropped before after customs, but will not have to travel to the other side of the airport’s terminals to get to the next flight.

  2. My Personal TAKE on the Situation is that LATAM is In Dire Straits,reached out to AA, then Qatar (owns 10%) and then IAG (BA/IB) and ONEWORLD. ALL of Them said We will Not Give You ANY Money….They had No Choice to Look ELSEWHERE. I fly quite often to South America and I have never been impressed with LATAM. LAN wasn’t bad but once they Merged with TAM the entire Operation changed. AA clearly understands The Market and just needs to FOCUS on getting Passengers around within the Local Countries……They have No Reason to Panic because I highly doubt They really benefited from much of what LATAM Offered. GOL in Brazil, SKY in Chile/Peru and maybe luring COPA as a Partner would suffice for Most of Latin America. AA needs to REFOCUS On the Latin Marketplace and the Point of Sale from MIA alone will push LATAM off of Many Routes because Delta will NEVER Build MIA at Any Scale to really Compete against AA and No Spin from Delta will change That FACT.

  3. So is the good deal for Delta in getting the airplanes or the feed from LATAM? Seems like it’s implied there aren’t a lot of people going beyond Miami (or Orlando). If there are all kinds of people that were connecting on AA to go all over the US it would be a win-win for everyone to instead take them into ATL and to connections beyond on a much better run operation at DL. But if connections were key why no DFW flight as that’s a better hub than MIA. Guess my question is, couldn’t DL get those planes without the huge investment??

    1. A – The good deal for Delta is more about being able to get its own passengers throughout Latin America. It provides huge utility for Americans going south. Sure, Delta can also get feed from LATAM, but that will really only be hugely important in building up Miami.

      1. and the good deal for Latam is being able to have a presence in the rest of the US outside of their gateways. We don’t know how much feed AA provided to Latam but all indications are that LA and JJ heavily relied on their local markets.

        Latam wanted a joint venture because it can’t continue to compete against US airlines which have massive networks in the US. DL, by virtue of its network, can provide a balanced cooperative network between its US network (some of which are LA/JJ gateways but much more so in the middle of the country which can make the difference in profitability of flights) and the big coastal gateways.

        There will likely be cooperation over time between Latam’s network and DL’s own transatlantic network as well as those of its partners. That has already happened with AM.

  4. You failed to mention in this article – which looks at Latam’s motivations for the deal – that AA immediately responded that the loss of Latam was essentially no big deal because it only contributed $20 million/year to them. One could take AA’s statement to mean there were very limited amounts of connecting traffic from AA to Latam. In fact, DOT data shows that DL connected far more traffic from its Brazil flights to Gol than AA did to Latam.

    We have no idea how much Latam relied on for connections but, absent that number, talk about the risk to Latam is meaningless. They are very aware of the connections they need to be able to compete with AA and they also know that there is essentially one other U.S. airline besides AA that can provide that at their U.S. gateways.

    Delta already has at least one-third of the local market passengers at comparable or better fares to AA from both LGA and JFK. DL is adding Boston. LAX will be back; that route is part of the historic DNA of DL. They simply had no strategic reason to fight for it but do now. Add all of DL’s current hubs and it is easy to see why DL already has about 10% of the domestic seats from MIA that AA has.

    Too many people assume that DL has to be close to its competitors in capacity in its competitive growth hubs/focus cities and yet reality shows that is not the case at all. Delta has half of the number of seats in the market that Alaska has at Seattle and slightly more than half of what JetBlue has at Boston – and yet Delta is approaching 80% of the revenue of the LOCAL MARKET those two carriers in those hubs. Delta simply needs to offer enough seats in the key business and leisure markets to gain more than its share of capacity in order to displace other carriers in the market. Delta has proven its competitive growth strategy works in RDU, Seattle and now Boston and it is clearly taking all of those lessons learned to apply them to Miami.

    Latam is the beneficiary of Delta’s network building knowledge and there is little risk that Delta will fail in Miami. Just as in Seattle and Alaska, Delta has much bigger pockets and will have success in winning over customers in Miami because of what Delta offers compared to its hub competitors in those cities. Despite a massively expensive new facility, AA’s operation in Miami runs poorly compared to other large hubs and is rated as such by consumers. Delta and Latam will be in the complete opposite side of the airport and can and likely will make improvements to their facilities. No airport wants to be singularly dependent on one carrier and MIA is not unaware of the financial challenges facing AA.

    Add in that the risk for Latam’s future will be shared with DL, and Latam could not have chosen a better partner. They will move at lighting speed at setup the JV so that Delta can start adding capacity as part of the JV and also so that DL will gain a greater financial connection to Latam’s finances. Just as with Virgin Atlantic, DL will not turn Latam around but it has been proven over and over with Delta’s partners that it does what it does to make the joint network between them work; the remaining part of Latam’s network – the domestic markets in S. America – will be their responsibility – but, if they can’t figure out how to make those markets work – they couldn’t have gotten this far as a company.

    From a network standpoint, markets that are heavily dependent on flow – including new markets that DL and LA will add – can work from ATL if there isn’t sufficient local demand from MIA. Remember that Delta now has the A220 – which has 6 hour legs and high performance – and will have the A321NEO – so can add virtually any market from MIA or ATL to Latin America with one of those aircraft or its new generation widebodies.

    As for the A350 part of the deal, it simply says that TAM chose the A350 while LAN chose the B787. An airline of that size doesn’t need two new generation widebodies. AA, DL and UA don’t do that. DL just happened to be able to fix that part of Latam’s financial problem – excessive fleet commitments – by unloading a fleet type that they don’t want to keep. It was a side aspect of the deal, AA could not have done it, and it helps DL’s fleet renewal because DL doesn’t order excessive amounts of aircraft so had the room to take on 14 A350s which Delta was likely going to buy at some point. And, btw, there is a good chance that Delta will push Airbus to allow many of DL’s orders to be for the UltraFan powered version when that comes out; that aircraft will be a CASM killer compared to the 787. And, Delta likely will be able to take the -1000 version as its hub to hub routes including to ICN and PVG develop. Several of Delta’s Pacific routes even with A350s are some of the highest revenue flights operated by US airlines, just as their predecessors were with the B744.

    Finally, don’t underestimate the impact DL’s move has on B6, NK and WN at FLL, all of whom have had desires or are attempting to grow Latin networks just north of MIA. AA has diluted its own revenues fighting off those competitors; the notion that there isn’t enough demand is non-sense. Most of the growth from S. Florida to Latin America has happened at FLL. There is enough demand from the area but the growth will shift back to MIA.

    So, no, there is minimal risk to Latam in this deal. AA was competing directly with Latam and likely was not supporting them as much as they could and only would have had they gained the JV. DL has the pockets to make this deal work, recognizes the opportunity, and is providing a package of support that Latam needs to complete its merger with TAM and position itself as a viable company and competitor not just in its core strength markets but across all of the Americas, something AA couldn’t have done in total regardless of whether they had been given an opportunity to respond or not.

    1. this is one of those super-duper-uber rare times that I completely agree with your assessment of the shock event.

  5. Here’s a couple of thoughts:

    1. Delta could beef up Miami a bit more, like bringing back Direct LAX service again. If space is an issue at MIA there are some good US Delta connections for LATAM in Orlando.

    2. Of course ATL is now in play.

    3. Other than LATAM’s 787s, the rest of the fleet could be maintained by Delta Tech Ops.


    1. Why would adding MIA-LAX help LA? They already fly twice daily to LIM and will fly daily to SCL from LAX.

      By making this move, they essentially fragmented their customer base, especially at MIA. My take is also that they basically dug their own grave. They must have either so badly needed the $$ or things with AA soured beyond repair. Wonder if or when the real dirt gets exposed :)

      1. It doesn’t help LATAM. But it helps Delta build a Miami base which they will want to compliment the LATAM network. Put three daily DeltaOne flights and you are going to hurt AA, who is already hurting against JetBlue Mint and will start shuffling three class A321s into the market in December.

        1. Three times MIA-LAX? For entering a transcontinental monopoly route that AA flies 8-9 times daily? [On which jetBlue is hurting AA by flying twice daily from FLL?? Are we talking about the same thing?]

          If that is the kind of expansion you are hoping from DL with this partnership, perhaps that is the best way to convert ‘DL Partners’ into ‘Etihad Partners’. Along the same lines, they should also invest in AZ (too bad they are adamant at only taking 10% share).

  6. this is one of those rare times i’ll unequivocally say BRAVO to Delta. Didn’t see that coming whatsoever. American has been so royally F’ed I’m surprised it didn’t happen inside Kensington Palace.

  7. You forget that LATAM also flies from Sai Paulo to Las Vegas and Boston.

    Also it is funny to note that in the past 1-2 years both AA and LA have reduced certain Miami flying in lead up to the JBA application. This includes surprise surprise, AA reducing MIA-LIM/SCL/GRU. The “new” service is just AA adding it back. LATAM also exited MIA-BOG/UIO/GYE, which I bet all comes back.

    1. that is absolutely correct. Most of this capacity isn’t “new” capacity but just reinstating what was flown before.
      If the previous capacity levels were right, they wouldn’t have been pulled. AA pulled the capacity it did because fares were too low and they have ticked back up as capacity has been “rightsized” to the market. DL, on a percentage basis, pulled similar amounts of capacity from the US to Brazil as AA.
      DL’s capacity will likely return over time from Miami rather than Detroit and to Rio (which, btw, is no longer a very large operation for Latam but still is for Gol)

      And there is a good chance that the route shuffling that Delta hinted at between DL and Latam will include DL metal in a number of markets that Latam only serves today, including to all of the major hubs to S. America. Delta simply cannot get by with becoming a domestic connecting carrier to Latam if they want their pilots to approve this JV. (and it doesn’t hurt that the prospect of a bunch of new widebody flying shows up right as DL and its pilots work on a new contract). Latam will end up adding capacity to other cities and potentially operating some routes from Delta hubs.
      From a marketing standpoint, Delta needs its own longhaul product in a number of key markets. MIA will still be one of the most “cooperative” hubs or gateways for Delta and its JV partners. And the extra domestic feed that DL will add will help AF/KL and VS as DL’s overall presence in S. Florida grows. Remember that historically DL was much larger in Miami than American. DL isn’t tilling the ground from scratch. They have remained the strong #2 in Florida (even without a hub) nand in Miami because of maintaining its presence that started decades ago.

      1. “Remember that historically DL was much larger in Miami than American.” – Oh I see, so as and when DL starts new routes from MIA one by one, all those frequent flyers from years back will magically transition back to DL, right?

    2. >LATAM also exited MIA-BOG/UIO/GYE, which I bet all comes back.

      If LATAM could not make it work with AA on the other end. Good luck with the local market only (it is not going to happen)

  8. CF,
    I am not sure how many articles you plan in the DL-Latam partnership series but one angle that also needs to be considered is the impact to United.
    UA has easily been the #2 in Latin America behind AA, even after its previous failed MIA hub, courtesy of the Pan Am asset acquisition. UA regrouped and has maintained its presence, thanks in part to its Houston hub but also because many of UA’s hubs are also in cities with large Latin populations.
    DL’s move might also have been pre-emptive since UA has been shopping around and trying to beef up its own Latin America partner. The results and the financial risk to UA have been far greater than to DL or to AA.

    Latin America could be the only global region where United falls to #3 among US carriers behind AA and DL while DL moves out of the #3 spot in Latin America.

    It will be interesting to hear your comments as well as others on that angle either within this article or in a separate one.

    1. at least UA already have partnerships with Copa, Avianca, and Azul, so even in the absence of JV (which I recall are already being applied for), there’s a certain feed structure already in place (and having 3 airlines ensures none becomes a single point of failure). #2 or #3 doesn’t matter much here since it’s never been the bread-n-butter zone the way Latin American’s been for AA.

      AA has their MIA but would have to completely rebuild their onward feed network basically from scratch.

      but yes, BRAVO to Delta this time. Very shrewd move indeed.

      1. Azul is not large at GRU or GIG which are the largest cities for US airlines. connecting passengers in Campinas doesn’t mean much for UA if they don’t fly there; AA tried and it doesn’t work for US airlines to try to compete with Azul.

        Copa and Avianca (if it can figure out its own financial issues) do provide a decent presence for UA in some of Latin America but not the biggest markets in S. America. Again, DL and Latam combined will be #1 in 5 of 6 of the top Latin America markets.

        UA just doesn’t have MIA or any chance of gaining access to it. They had their chance post Pan Am but American didn’t take long to overcome UA’s feeble attempt. UA’s network is simply not suited to compete in S. Florida.

        1. funny how here you have to lump DL and LATAM together to make it the biggest (and LATAM was the biggest on its own, with or without DL), but then conveniently ignored JVs for Haneda and said DL is the largest US carrier there.

          So either we always lump JVs together or always ignore them. You can’t have it both ways.

          1. There is no confusion at least on my side about the difference between JV and single carrier capacity. Nor has there been any attempt to blend the two where they are not supposed to.

            The difference between HND and every airport in Latin America where JVs might exist is that there are no hard caps because of treaties on the number of US carrier flights at any airport in Latin America while there is at Haneda. The whole reason Haneda is and will be an issue is because other US carriers can’t add capacity; because of the DOT’s requirement that airlines be able to expand when their competitors are in JVs, Delta ended up w/ more flights on its own metal at HND and AA and UA as well as HA cannot add any more on their own. The DOT controls the allocation of flights at HND.
            That is absolutely not the case at any Latin America airport that will be part of the DL-LA/JJ joint venture. Any other US airline can add capacity as long as slots are available regardless of what DL and LA/JJ do. That is the norm in the world where US carriers have JVs. HND is the exception.

            No one lumped anything together that shouldn’t be but some of you can’t accept that AA and UA have put themselves in the position of not being able to add flights to HND on their own metal because of the JVs they have with Japanese carriers. JV partners do not employ American or United employees which is why this whole JV thing doesn’t really work out if market forces are left to work. AA and UA are forced to operate flights at NRT that will not perform near as well as those at HND because they fear what will happen when they tell their employees that they gave their flying away to a JV partner.

            So, no, we don’t ALWAYS lump them together but we do know when it is appropriate to use each type of flight.

  9. Thanks for another interesting perspective on this transaction. However, I really think most of the pundits are downplaying the failed joint venture too much. To me (and I could be wrong), that’s the root of the issue. I’m guessing (and only guessing, since I’m not clairvoyant) that the American/LATAM relationship “soured” because the joint venture wasn’t only “problematic” it was dead. And the Chilean Supreme Court killed it.

    Again, I could be wrong, but it seems to me that airlines don’t add flights or don’t pull off major transactions at the drop of a hat. There’s usually a fair amount of thought and planning that goes into these things. So it seems to me that this has been in the works for a while. However … I’m quite surprised that nothing leaked out about all of this, which is a counterpoint to my above observations.

    In the end, everyone will adjust. The airlines involved will be just fine in the long run. There’ll probably be two strong joint ventures that come out of this, as opposed to one that dominates the region (with a few “cats and dogs” fighting for the leftovers). The big winners could be consumers.

    1. I’m not sure what the debate is but there is no doubt that Latam would have preferred a JV with AA if they could have had one. They are no different from any other company in seeking the largest partner to dominate as much of the market as possible.

      The fact that the government of Chile said no not just to AA but also to BA and IB shows that they want cooperation in the marketplace and not to be dominated.

      Latam might have turned to DL as “plan B” but they very likely will end up better off because Delta has to treat Latam as a partner while AA would have always been in a position of dominance both in terms of feed it can provide in the US as well as competing in many of the markets directly against Latam.

      The consumer does win. AA has to defend its Latin America network at its core MIA hub where it has not had to do that for more than 20 years. DL is stronger financially than it has ever been and also stronger relative to AA. From a strategic standpoint, this could not be a better time for the MIA-Latin America market esp. to gain a second competitor from the success of both having to work incredibly hard to make both succeed.

      Also, it is precisely because AA will have to focus on MIA and Latin America that other carriers including DL and UA will be able to accelerate their growth in other markets competitive with AA including NYC, LAX and CHI. AA’s weakened finances relative to other carriers means that AA will be strategically and financially stretched as never before – even as they face a number of other issues including with their workforce

      1. There’s no debate. Your point about which airline partner LATAM would have preferred became moot on May 27th, 2019, when the Chilean Supreme Court ruled. That was about 4 months ago. I have little doubt that LATAM moved to “plan B” almost immediately because it would take about that much time for the sides to negotiate the terms of the deal and arrange the financing. Given the Chilean Supreme Court decision, LATAM had no choice if it wanted a joint venture that included its home country. (which one would think LATAM would want). So it made the extremely smart decision to partner with Delta to rectify that situation. Delta doesn’t have a Chilean Supreme Court ruling getting in the way of a joint venture with LATAM (a point American made in its press release). Obviously, Delta is a far better partner for LATAM than United, whose paltry presence in the southeastern U.S. made it a less than desirable option, to put it mildly.

  10. I am curious how much Delta pushes LATAM to beef up LAX. With all the capital investment Delta is pouring into that airport they have to be looking at driving through to South America from there to some extent. Everything can’t route through Miami.

    1. The geography isn’t great for that. South America is way farther east than most people probably envision in their mind. Lima (on South America’s West Coast) is actually further *east* than Miami (on North America’s East Coast). LAX works well as a connecting point for people traveling from South America to the US/Canada West Coast, or onward to East Asia, but that’s about it.

  11. I suspect Delta’s network “realignment” towards Miami will just involve moving existing routes from FLL to MIA. Delta already serves CVG and SLC from FLL, but not from MIA. In addition, the RDU route is year-round at FLL, but seasonal at MIA. It would be straightforward to just move those routes 25 miles down the road to MIA, which would connect their network with LATAM’s without introducing any more capacity to the very competitive domestic air market in the Miami/Lauderdale metro area.

    Maybe they would also move some individual flights to increase frequency at MIA while decreasing frequency at FLL. Their costs will probably increase significantly, since MIA is a notoriously expensive airport to operate in, but if the connecting traffic is high value then it may be worth it.

    1. Delta will not move routes from FLL if they make money; they will add routes from MIA that make economic sense. DL is the largest airline by revenue from all other Florida cities combined except for MIA and they aren’t going to undo that just because they are building something new in MIA. DL’s presence in the rest of Florida is driven by different reasons than Latin America (although Delta does compete very effectively from central and north Florida to Latin America via Atlanta); DL is also the largest carrier of international revenue from Florida except for AA at MIA even though nearly all of that goes via other Delta hubs.
      Domestic adds at Miami are likely what we will see from DL over the next few months and until a JV is approved. DL is undoubtedly on the phone w/ MIA right now scheduling some time to talk about facilities; DL can only do as much as the facilities will support. DL needs to build as large of a domestic network solely to have the size of operation necessary to win over key passengers. They already do well from NYC and will keep adding key routes.

      Gol is in the driver’s seat in terms of its future. DL invested money in them and they have every reason to expect that any further cooperation will be on the same basis. AA simply doesn’t have the money to invest that DL has done in other carriers but you would think that Gol would be a priority. There are costs to Gol to link up with anyone; they are going to expect those costs will be covered by their US partner just as DL is doing for Latam. Those transition costs could be just as large as the actual investment. It is also possible that Gol might have decided it isn’t worth having an equity partner and simply offer codeshares to multiple airlines. The position they were in when Delta invested in them is different and they are better off now.

      You are right that this whole thing will take years to play out. Remember that S. Florida to Latin America has been dominated by AA for decades; that dominance won’t end overnight but there will be increasing movement to multiple competitors just as existed from LAX to Asia and from NYC to Europe.

      btw, another factoid which hasn’t been noted is that DL plus Latam plus AF/KL and VS have about 1/4 of the international ASMs (not just longhaul but outside of the US) that AA has from MIA – so Delta is starting from a much larger base than a lot of people realize.

  12. Brett,

    This is probably the most rational analysis of this transaction I’ve read. It IS a game changer but LATAM has already stated that they will continue their relationships with BA/IB/QF, so the biggest “loser” is AA. But, with GOL out of the DL orbit AA could acquire a small stake in GOL and maybe do a deal with SKY/Peru-Chile so problem mostly solved if they run with those options.

    Yes, this is a coup for DL in many ways but it is also a risk. DL won’t be able to do it to AA in MIA like they are sorta doing to AS in SEA. Plus AS has more partners than a polygamist. Good ones too.

    It will be very interesting to see how this plays out in the years, yes YEARS to come.

  13. I think it would be interesting to see if/how Aeromexico impacts this, since AM is tightly in the DL orbit and Mexico is, broadly speaking, between the US and S America.

    1. Interesting point and I’d love Cranky’s take on it from an anti trust perspective.
      Delta owns 49% of AM. For all intents, a controlling interesting when they have one other sympathetic vote.
      Will AM be included in a Delta/LA JV?

      If it wasn’t, Would The DOJ need to consider Delta’s near controlling interest in AM as a means to prevent AM from pricing North America > South America in a way that could disrupt the DL/LA JV? By no means is AM a lower-cost pricing disruptor like Copa, but it seems like it would have to be taken into account that delta wouldn’t want AM using narrowbodies from North America to fill wide bodies to South America via MEX in the event of a JV.
      It seems like Delta’s JV with AM in North America could be an issue in a future tie in with LATAM.

      which then makes you wonder, if AM was included in a LA/DL JV, what kind of carveouts between Mexico and most LATAM hubs would be required?

      All speculation, but an interesting dynamic I was curious about…

      Great article! Thanks!

      1. Will – I don’t think I have any of the answers to this, but speculation is certainly fun. I mean, the reality is that Delta is building something with WestJet, Aeromexico, and LATAM that will be quite formidable through the Americas if it can pull it all together. I am really curious how Aeromexico and LATAM will fit together with Delta. I’d say there’s plenty of room for them to come together.

      2. Will,
        AM is not a part of the joint venture application and from a legality perspective it would be pretty hard to include separate companies from different countries in the same JV. Antitrust approval and the ability to offer joint ventures will be done

        AM has one daily flight from MEX to SCL, EZE and GRU; that is simply not enough to move the scale even if AM were in the JV.
        They have 3 daily flights to LIM and BOG; more significant but a small fraction of that capacity is sold to/from the US. They, like Copa, operate most of their US flights on narrowbody aircraft while most of the capacity from deep S. America is on widebodies. Mexico is a large local market: Panama is not.

        Delta has said they expect for AM to increase cooperation with Latam but it won’t be in a JV, or if it is between AM and Latam for Mexico to each S. America country, it won’t involve DL. AM has already benefitted from DL’s efforts to increase coordination between AF/KL and VS. In some cases that coordination is solely wiht Delta being the marketing airline on both segments via the US or with Delta operating one or both of the segments. As the dealmaker, Delta is able to aggregate the largest cumulative benefits of its multiple joint ventures for itself.

        1. I missed part of a sentence
          Antitrust approval and the ability to offer joint ventures will be done on a country by country basis. joint ventures between Delta and Latam will require approval in each country where Latam has a base (Argentina, Brazil, Chile, Colombia…)

        2. I promise you don’t need to comment on every post I make, particularly when the question is directly requesting someone else’s thoughts.:)

          That said, if a Delta/LA JV were successful in raising prices in the future via reduced competition, Aeromexico would certainly need to act in the interests of its shareholders and consider the possibility of offering west/Midwest connections via MEX to potentially more locations in South America with a lower cost base and great O&D already from MEX.
          My simple point is that, Delta, in a JV with AM and a near controlling interest in AM, would have a very obvious reason to thwart this type of theoretical lower-priced connection, especially with some of the feed for it coming off its own metal into mex in the DL/AM JV.
          Speculation is fun and that’s all this is, but if I were in the DOT, I’d be curious about it.

          1. since you replied to me, I will reply to you.
            Delta specifically addressed AM in its comments about the potential future. That wasn’t captured in what has been discussed so far which I presume is why you asked.

            You are the one speculating on what AM might do about capacity and pricing that is not only not in keeping with what AM is currently doing but also not in keeping with what Delta can do.

            Delta cannot tell AM how it prices US to Latin America outside of Mexico. They are still a minority owner and this is a very good example of why most countries require that foreign investors not be able to hold a majority stake in an airline. Even if it could take a majority stake, I doubt if Delta sees any benefit in doing so.

            Delta’s joint venture with AM does not extend to S. America.

            Delta will connect its partners’ efforts but they are not in a position legally to control all of the efforts of their partners.

            I won’t reply if you choose to reply. Actual facts might not be quite as fun but they do deal w/ speculation such as you have raised.

  14. >>>>it’s been an operational war zone that haunts the souls of all travelers for many years<<<<<

    If that doesn't turn up somewhere as quote of the week, then there something wrong with the world…

  15. Everyone seems to go by what is announced, so let us go by that: LA said they are going to retain their JV with IAG (JV carving out Chile) and also the partnership with QF to Oceania. DL’s European partners are AF/KL/VS. DL’s Oceanic partner is VA while LA’s is QF.

    So basically DL wants its FFs to choose AF/KL/VS/VA but LA wants its FFs to choose BA/IB/QF? How will they manage to retain the same FF base? Where is the concept of DL partners here? Or do you think DL will convince LA to switch partners?

    Let us assume they switch over to all of DL partners. AF/KL/UX’s proposed JV is already larger than the proposed BA/IB/LA JV. Will a combined AF/KL/UX/VS/LA JV be approved by the authorities? Of course they could throw UX in the trash like G3 or AR.

    DL will still be in SkyTeam. But LA risks being outside an alliance. Alliances may not be important or useful for small airlines. But for a pan-South American airline the size of LATAM, it is crucial for loyalty, especially for their international travelers. What the oneworld alliance provided was consistent set of partners to earn and burn miles. Essentially LA just threw up the best situation they had and broke up its customer base. If they want to wait another 2 years to switch partners, they would already have lost their customers to other airlines.

    If they did this for the money, they must have been desperate – if so good luck to them!

    1. Kannan – I don’t really see the conflict here. People in South America will be loyal to LATAM’s program. From there, they can fly Delta north, Qantas west, and BA and friends east. There is no issue with having loyalty to multiple programs. Then Delta frequent fliers can fly LATAM south but AF/KL east and VA southwest. It’s all about finding the best options from the home country. Maybe LATAM changes its mind down the line, but it doesn’t need to.

      1. @CF : Kannan is referring to those actually rich travelers from Latin America who wanna go explore intra-East Asia, intra-Africa, Middle East, and in between them. That’s a huge swath of space that will be completely off LATAM’s earnings map (QR’s 10% investment in LATAM isn’t the same as unrestricted allianced-based earnings)

        There are roughly 3 major vertical chunks of space on Earth for major airlines – Americas, Europe-Africa, and East Asia-Pacific. You can cover 2 of the 3 links with just JVs and investments. To cover all 3, you need an alliance.

        Airlines are businesses who think for themselves, but as a passenger no one says i’m required to follow their doctrine and only give them what THEY want instead of them offering what i want. It’s my ability to JNB-PER nonstop or IST-MEX nonstop or BKK-MCT nonstop and still have status recognition and full mileage earnings without having to worry whether those airlines are besties or enemies with UA that keeps my loyalty at Star. Delta’s selfishness is exactly why i give them nearly $0 of my annual spend.

        And for trolls who claim premium pax only fly DL, remind them the single highest lifetime miles FF flyer on the entire planet, Tom Stuker, flies UA not Delta.

        1. henry – I see what you’re saying, but it doesn’t sound like it should be an issue. LATAM seems to want to keep relationships with all of these airlines. If someone flies Qatar from Paris to Bangkok, they should still be able to earn miles on LATAM. Of course, we’ll see how many of these existing relationships end up solidifying after the alliance ties go away, but there is still the ability to get good coverage, I’d think.

  16. I’ll throw my two cents in here around the comments about MIA being an awful airport. While these sorts of things may matter to road warriors, the vast majority of the flying public including international tourists, could care less. While OTA’s are increasingly showing and/or searching fares at alternate airports within a certain distance, the reality is that people who want to go to Miami are going to type Miami into the search bar and be directed to MIA. While FLL certainly is an alternative, and to even lesser extent WPB, the vast majority of people are not going to think of those or be aware that they are a viable options.

    1. `There are far too many people who see customers as either super high value premium passengers or low value coach passengers that are motivated solely by price. The reality is that there are huge numbers of people who are regular international travelers but don’t make the cut for being a “loyal” passenger in someone’s FF program.
      The very reason why Delta chose to put seat back video in its domestic fleet while AAL and UAL are ripping them out and why DAL has no 10 abreast 777s or 9 abreast 787s or any comparable international coach configurations is because DAL knows that customers do pay for a better experience, even in coach. The endless parroting that Delta gets high fares because they have dominant hubs doesn’t fit with their strategy to deliver a higher than average quality product. If DL dominated their markets, they wouldn’t need to deliver decent service. It is precisely AA and UA that should have high service but they don’t. They also each earn about 1/3 on their international systems that Delta does according to the DOT which uses data provided by the airlines themselves.

      MIAMI IS a frequently discussed bad experience for American’s passengers including those that travel regularly to the US from Latin America – not a small number of passengers. Miami airport is not the problem.
      Note that AA replaced their MIA head ONCE AGAIN right after Delta announced the Latam deal. AAL knows they have been able to get by with bad service at Miami because of the lack of competition. That all changes as soon as the first codeshare flights between DL and LA/JJ are loaded – and it will grow with new flights and an eventual joint venture.

  17. We can now sit back and watch the whole LATAM drama drag DL down. MIA is going to be a mess! WATCH!!!

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