American’s Partnership with JetSMART Leaves Many Unanswered Questions

American, JetSmart

Sorry for the delayed post this morning, but, well, there was an embargo in place, so I had to wait until now. American today is announcing a partnership with JetSMART. Your first question is probably… who the heck is JetSMART? And if you do happen to know who they are, then your question is mostly likely… why on earth is this happening?

There is much we don’t know about this partnership just yet, but let’s see what we can decipher. American will be putting money into JetSMART. We don’t know how much, but it’s a minority stake, and it’s small enough that a disclosure isn’t required. The partnership will allow American AAdvantage members to earn and burn miles on JetSMART flights. There will be a codeshare between the two airlines.

If you think this is a poor substitute for LATAM, you might be right. Then again, you might not be. See, JetSMART is hungry, and has big plans. The airline is one of the Indigo Partners airlines which includes Frontier, Volaris, and Wizz Air. There is plenty of money behind the company.

The airline started in Chile, but it had already moved into Argentina before it bought out the remains of Norwegian Argentina. So I think this means we can safely say that American is partnering with Norwegian. There’s your headline.

Here’s the combined route map between the two airlines, though I made a revision and removed Manaus since American dropped that one recently and apparently forgot to wipe it off the map.

Right now, the airline has 20 airplanes. It looks like there are five A320s in Argentina along with six in Chile. It also has nine A320neos in Chile, I think.. This is not a large airline, so you might be scratching your head, but it has another 79 — yes, 79 — aircraft on order, all Airbus narrowbodies. At one point, there were even some A321XLRs on order, but that order was split between all the Indigo airlines, so I don’t believe where anything will end up until I see it. What is clear, however, is that this airline will be at 100 airplanes pretty quickly if all goes according to plan.

JetSMART is an ultra low-cost carrier. It has one class of service, and other than some extra legroom seating, it’s all coach. The JetSMART A320s have 186 seats. American’s have 150. And nearly all of JetSMART’s routes operate less than daily. So to echo an earlier question, what is American thinking?

The key here may very well be the minority stake. American wants to exert some level of control or it wouldn’t have bothered. I can’t imagine JetSMART desperately needed the cash. It smells opportunity. The problem is understanding exactly what that opportunity will be.

Right now, JetSMART can connect some people off American in Santiago to other Chilean destinations while in Bueons Aires, it still requires an airport change since American is at long-haul Ezeiza while JetSMART is at close-in Aeroparque. It’s the same problem Aerolineas Argentinas faces in its own operation. Though I’m sure there’s enormous demand for connections to Chiloé on Tuesdays and Fridays — those are the only day it operates — the flights don’t even connect off American’s arrivals.

I have to assume there will be work done to improve connectivity, but let’s be honest here. American doesn’t need a huge amount of connectivity in Chile. JetSMART has already started sniffing around Peru and Colombia may be part of the plan too if we’re looking at important markets. But ultimately this doesn’t bring a great deal of value to American’s home market in the US. Instead, this has to be a different play.

American has long been the leading US airline in Latin America. Though I wasn’t able to get numbers, American did talk about how it has a huge AAdvantage presence in South America. People have flown American for years to get to the US, and they’ve previously flown LATAM within South America.

When Delta took LATAM away from American, it started a proxy war. Delta and LATAM together would handle long-haul while LATAM could handle short-haul. American lost its ability to be relevant to those in South America who wanted a solution to fill all their needs. So, American started scrapping.

It first added Delta’s jilted partner Gol in Brazil, and now it’s adding JetSMART to seemingly fill in the blanks in these and eventually more markets considering how many airplanes are coming. But for this to have even a shot at working, JetSMART can’t just keep flying sub-daily in markets. It is going to have to create a network that will try to challenge LATAM in business markets.

But wait, LATAM is a full service airline and JetSMART is not. That may be true in name, but LATAM’s short-haul premium product is a lot like that on European airlines. It’s a blocked middle seat and not much else except for some extra perks. It wouldn’t be hard to offer those perks to people paying for the front row on JetSMART. It’s not like they need to try and replicate a domestic US First Class.

For this to work, however, American and JetSMART need to convince people to fly JetSMART locally. And for that to happen, it needs a lot more frequencies in key markets. So, will JetSMART play ball? American owns some stake in the airline, so presumably that was done to make it clear what it believes needs to happen. I can’t imagine other airlines were knocking at JetSMART’s door to be a partner. This is a very different kind of thing.

If it works, it bolsters American’s long-haul product to South America, potentially taking share back from Delta/LATAM and making American more relevant. If it doesn’t work, well, we don’t know how much American has at stake. I should hope it’s not too much. We’ve seen how those investments can blow up in your face. But in the scheme of things, it’s probably a drop in the bucket. And it’s not like there’s another obvious option.

Get Cranky in Your Inbox!

The airline industry moves fast. Sign up and get every Cranky post in your inbox for free.

22 comments on “American’s Partnership with JetSMART Leaves Many Unanswered Questions

  1. For as many destinations as JetSmart serves in northern Argentina & northern Chile, I’m a little surprised that it doesn’t also fly to La Paz or Santa Cruz in Bolivia.

    1. Bolivia is a highly regulated country with a complicated political system at the moment. It’s quite likely that JetSMART passed up on serving those cities because the difficulty that they would have to go through to obtain clearance isn’t worth the trouble. And Bolivia sets up roadblocks to favor BoA.

      1. Thanks, that’s pretty much what I figured. South American politics can be “interesting” in the best of times.

  2. This is a really interesting investment. When I first saw the headline it was a mental thumbs-down from me, but I appreciate your explanation of the upside. I didn’t realize that LATAM has a Euro-style business class on their short-haul routes. Knowing that makes this much more palatable. Connecting off a long-haul business class flight to a ULCC (especially if AA can convince them to block middles) is less of an issue if connecting with the competition would also involve just a main cabin seat.

    As for the network aspect, I think your observation about AA’s investment is probably a good one. While many of those new planes will be used for adding new dots (I’m guessing, I obviously don’t know) it would make sense for AA to guide them to use some to fill in frequencies. Once that’s taken care of then JetSMART plus GOL will just about make up for LATAM, at least in terms of dots on the map. An interesting wrinkle would be if JetSMART got some of the aforementioned 321XLRs and started flying to MIA or DFW or somewhere else. I’d rather not fly between North and South America on a ULCC, but some would certainly be happy to, I suppose.

  3. American is replacing its partnership with Latam with multiple other partnerships to try to duplicate Latam’s multi-national network which says that Latam either had a lot more of a contribution to AA than AA said at the time it lost Latam or they see the potential for Delta to gain more than American achieved. United continues to pursue its own equity/joint venture partnerships within Latin America.

    As far as the Buenos Aires airport situation is concerned, it isn’t any different than in São Paulo or NYC or Tokyo or Paris or London where there are distinctly different operations at multiple airports. Brazilian airlines are probably the best positioned to service secondary Argentinian airports via GRU and, of course, AA might be able to serve many of those airports via MIA with the A321XLR or widebodies. Gol does serve some international markets but it is a solid Brazilian domestic airline. Even without Latam Argentina, Delta can gain similar access via Latam or even from DL’s own flights from the US.

    And it is notable that AA is pursuing the same equity strategy that Delta used extensively pre-covid and allowed it to expand its reach. In countries where there aren’t many competitors, equity investments do make sense. And Latam and AeroMexico are probably in the best place to be in bankruptcy in the midst of a continued massive revenue decline; both will come out of bankruptcy as much lower cost competitors. United’s long bankruptcy post 9/11 allowed it to reposition itself and provided a template for airlines that came behind could improve and competitors had to overcome. The same thing will take place in Latin America. Covid is the event that precipitated Latin America airline restructured – and JetSmart will figure out what it has to do to succeed and grow – and pass those benefits on to American. It is not a given that Delta, Qatar and other investors will lose all of their equity in its partner airlines and a similar situation could play out with United; American did not wipe out all of its shareholder equity in its bankruptcy, one of the first US airlines to be able to do that in a chapter 11 filing. Against that backdrop, AA’s strategy here not only makes sense but it is using some of the same tools that other carriers have successfully used.

    1. Aeromexico is getting crushed in Mexico and Volaris is thriving. Latam Brazil is in danger of getting swallowed by Azul. Before you know it, Latam will be back down to LAN. DL is going to lose its stakes in those airlines. It didn’t put any money in their chapter 11 filing. Try to find another airline that didn’t lose their stakes in a similar scenario. It’s truly amazing the depth you are willing to go to defend every DL moves.

      AA is taking a minority stake in order to be involved in decision making for JetSmart. It could be a really stupid move or it could work out. Either way, they don’t need to put a lot of money into this.

      Latam + DL partnership is working out to be the worst move of both airlines.

      1. Bankruptcy is a stressful and uncertain process but it is also highly survivable and the current 3 global carriers and their merger partners from this century prove it.
        Chapter 11 bankruptcy by nature is intended to cut costs in preparation for rebuilding a company for the future; it is speculative at best to predict what future market strength will be for any company that is currently in chapter 11.
        Demand within and to/from most of Latin America and esp. S. America is still well below the United States which happens to be one of the strongest global markets during the global era – thanks to overall lower restrictions on the movement of people and, of course, huge amounts of government aid.
        JetSmart makes sense to get American back into the S. America partner arena and the fact that they are doing it on an undisclosed equity basis says they, like Delta with both Aeromexico and Latam are playing the long game with a company that is willing to engage foreign airline partners.
        Delta has provided financial assistance beyond equity during the Aeromexico and Latam chapter 11 processes so it is far from clear how Delta’s pre-bankruptcy investments will end up. Delta has not completely written down its investments because the chapter 11 process is not complete.
        As much as you want to come to conclusions, the mere histories of American, Continental, Delta, Northwest, United, and USAirways argue against doing so.

  4. This may be less about direct connectivity with AA as it is providing an option to expand AAdvantage earnings with AA South American memebership. Gives a place to earn and burn on local flights, but most burn would probably be in AA most of the time.

  5. A few observations:

    First: Airlines exist primarily to transport people and goods from one place to another. Contrary to the view of some aviation enthusiasts, airlines aren’t in the business of showing movies, serving food, or providing a place to sleep.

    Next: I remember reading that American and Gol (as of 2019) are slightly larger overall to South America than Delta and LATAM (of course, that situation is in flux and the shares aren’t too far apart). That’s a function of American’s overall size in that part of the world, the fact that Brazil is South American’s largest aviation market, and GOL is Brazil’s second-largest airline, running virtually neck and neck with Azul. The LATAM Delta tie-up has simply leveled the playing field, which is probably good for consumers. The addition of JetSmart enhances American’s presence in South America (though not by much). Based on what I’ve seen recently, a number of older South American airlines are going out of business, and the ULCC market share is growing.

    Last but certainly not least: Bill Franke, Indigo’s managing partner, hired Doug Parker at America West. He also hand-selected Parker to succeed him. Those kinds of relationships are invaluable in business. And who’s to say that American won’t partner with other Indigo-owned carriers in the future. Stay tuned. This could get interesting.

    1. Interestingly, the map on the press release I just saw on American’s website leaves out Manaus.

  6. Chiloe has penguins :-D I honestly never realized Castro had an airport, we’ve always flown to Puerto Montt and taken a mix of bus/ferry down there. Its not an easy destination to reach, well, honestly most of Patagonia isn’t easy to reach.

    Is JetSmart as tight on legroom as SkyAirline? Flew them a few times and we got stuck in the last row, had to sit almost sideways. I think my knees are still screaming at me. But was odd to see faux wood paneling in the lavatories for a “super” LCC.

  7. The current AA management desperately wants to be an ULCC like frontier. This makes perfect sense with that strategy.

  8. Despite this move, I think jetSMART was probably going to be LA’s biggest threat going forward – primarily because they have been expanding rapidly in LA’s home markets with the ambition of becoming a pan-South American carrier (which is also one of the reasons LA’s was shifting towards the LCC model). I was also wondering about FF programs. The wording on the press release seems to indicate AAdvantage will be their FF program? If so, jetSMART will be more or less like AA’s regional operations in South America.

    What is interesting is that come 2022, LA’s network is taking a whopping reduction – for e.g. MIA-GRU/SCL will become just 1x daily, MIA-LIM reduce to 2x daily, JFK-GRU/LIM/SCL will not even see daily services from S22. With this, LA has already ceded their most important markets to AA, which will offer twice the frequencies on most routes. With AA adding fuel to the fire by boosting jetSMART, I suspect this will be a thorn in LA’s side for years to come.

    1. There is also the very real possibility that Delta will add its own mainline flights in some S. American markets including from Miami once the joint venture is approved but Latam also very much will re-add longhaul capacity once demand returns. American’s partnership with JetSmart will have minimal impact on AA’s ability to maintain multiple S. America to US frequencies compared to a Delta-Latam partnership because JetSmart, like Gol, doesn’t fly the same routes from the US to deep S. America. Delta and Latam’s ability to compete with American’s US to S. American network will be on the basis of their long haul partnerships which is different from what American is proposing with its partnerships.

  9. It’s probably not a good idea to think the current industry trends are going to be the norm 5 years from now.

  10. Never was a fan of LATAM and good riddance as far as leaving ONEWORLD…..surprised any of the remaining Members have any association with the Carrier created after LAN merged with TAM. Total Trash Operation. AA was wise reestablishing ties with GOL in Brazil and JetSmart could be a very intriguing tie up considering most of the intra Latin market seems geared on Low Cost Operators. LATAM… loss and there is a reason why No Carrier in ONEWORLD opted to invest in them.

  11. Could you do a post investigating if Abra Group airlines will remain aligned with United or American given the mix in ownership?

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Cranky Flier