American Looks to Gol to Fill In the Hole

American, Gol

American is at it again. Soon after putting money into Chile-based Jetsmart, the airline is now doing the same thing with Brazil’s Gol. This feels a lot more like a Delta strategy than an American one, but, well, I guess if you’re desperate enough to fill in the gaps, you do what you think you have to do.

When Delta lured LATAM away from American with a very large equity investment, it shifted the landscape of US-based carriers in South America. Delta had a weak presence in South America, trying to fill in the holes itself with an equity investment in Gol and ties to the weak-link of Skyteam, Aerolineas Argentinas.

By adding LATAM, Delta was able to open up new opportunities all around South America that would also feed into the US. The end results is a network that looks like this. Keep in mind this looks at all flying for Delta and partners with reciprocal elite benefits — LATAM is a work in progress, but it’s included here — within the Americas as of January 2020, so assuming a pre-pandemic network returns.

Map via Cirium

That is a pretty thorough network and one that can serve Delta well. Then there’s United, an airline which has long leaned on Copa as its crutch going south, but it has added Avianca and Azul in recent years to beef things up even more.

Map via Cirium

The nature of United’s east-west network becomes quite apparent in this map, but you can see that South America is somewhat choppy. Yes, Copa and Avianca give good coverage through the northwest part of the continent, but that Azul route map on the right is largely unconnected to where United flies in South America. And the southernmost part of the continent is all but bare.

And then there’s American. Once LATAM left, American was left with a map that doesn’t look great, although it’s surprisingly less empty than you might expect.

Map via Cirium

In this map, what do you see? American covers the domestic market incredibly well, especially considering both the Alaska and JetBlue partnerships. American does very well south of the line from the Northeast to Southern California. With Alaska in Seattle and JetBlue in Boston and New York, it gains the rest of the country as well.

Canada is certainly a weak point for American since Air Canada and WestJet partner with others. Maybe that gets resolved or maybe it doesn’t, but to Latin America, it has impressive coverage on its own. The problem is, without partners, it still lags Delta and United significantly.

We talked about this in the Jetsmart post. American has nearly all it needs to fly people from the US into Latin America. Sure, it could generate some extra connections, but the big issue is that it thinks it has a huge loyalty base in South America itself that it will lose if it can’t cater to their needs to go everywhere, even within the continent.

Jetsmart entered the conversation then, but there’s not much to show for it yet. Sure, it helps in Santiago, but that deal is more about future growth which will eventually blanket the important parts of the Spanish-speaking part of the continent. If we add Jetsmart to the map today, it barely changes things at all.

Map via Cirium

Jetsmart, however, is not likely to be big enough player over on the Portuguese-speaking side of the continent, in Brazil. American had already picked up Gol as a partner after Delta cast it off, but that was a very basic arrangement. This new one will bulk up the benefits significantly.

Now, AAdvantage elite members will get elite benefits when flying Gol. There will be more earning and burning options coming, apparently. The codeshare will be expanded, and there’s an exclusivity deal here. American can’t codeshare with anyone else in Brazil, and Gol can’t codeshare with anyone else in the US.

Is this all worth $200 million? I doubt it. We’ve seen this equity strategy time and time again, and just ask Delta how that’s working out. The good news is that in the scheme of things, this isn’t a lot of money. But still….

Map via Cirium

From a connectivity standpoint this may add a little value, but it really doesn’t do all that much. Yes, American will be able to connect people into Gol, primarily at Sao Paulo/Guarulhos, but Gol isn’t generally built for connecting traffic. It has sub-daily schedules that aren’t meant to feed a hub. (I say that, but it’s way better than what Jetsmart has.) Sure, there are enough flights in bigger markets to have a decent connection, but those aren’t huge markets for the most part.

Instead, what this does is give options for all those AAdvantage loyalists based in Brazil to fly Gol for their local travel and get elite benefits. It’s the same thing American used to be able to do with LATAM before the breakup.

What’s hard to know is how big that opportunity is, and what would be lost without it. I had previously asked American for a breakdown of members in AAdvantage by country, but they wouldn’t provide that. I do know that they consider it to be substantial.

While I don’t like these equity deals, this is a small sum in the general scheme of things — remember, Delta spent 10 times this amount on LATAM — so maybe it’s worth taking a chance. But without knowing more about American’s AAdvantage numbers and the ultimate goal here, it’s not something that can properly be evaluated from the outside.

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16 comments on “American Looks to Gol to Fill In the Hole

  1. Hey Cranky,
    Since it’s generally related to the topic, where do you think Delta and LATAM will end up? There seemed to be a lot of chatter about LATAM brasil being spun off or sold to Azul but I guess that’s died off?

    How will Qatar’s post bankruptcy investments in LATAM influence what happens with delta since delta’s pre bankruptcy investment is probably lost?

    I realize it’s speculative but i was curious if you’d care to guess since it will be such a game changer.
    Delta doesn’t seem interested in helping LATAM in Miami anymore.

    1. Good point. If Delta is serious about Latin America, they MUST bulk up their operations in MIA and do so with connections to LATAM in mind. Obviously, the pandemic quashed Delta’s MIA plans over the past 18 months; but, I do hope they are serious about this. As for LATAM, they’re far from the airline they once were (back in the LAN days). Dealing with bankruptcy and an increasingly dated fleet, there are issues that they need to address going forward.

      I do believe that, by addressing the issues of MIA connectivity (and adding more connectivity via LAX), an aging LATAM fleet, and (importantly) LATAM’s ill finances – Delta can cobble this together to supplant AA as being the US airline that wins Latin America. Currently, American is that airline.

    2. Julie – Lots of questions here, but let me see if I can share some general thoughts on it.

      I don’t doubt that Delta and LATAM will continue to move forward with their partnership, and it will last for awhile. Whether pieces of LATAM get sold off or not, I have no idea, but I have heard all that talk in Brazil as well. That wouldn’t impact the relationship between Delta and LATAM. It just might mean there’s less for Delta to partner with if something happens.

      I don’t believe the LATAM plan has been finalized, so I’m not sure if any Qatar deal has been confirmed yet. But if Qatar is still in it by the time the dust settles, which they probably will be, I don’t think it will change anything. LATAM and Qatar might have some non-alliance ties, but that shouldn’t impact what happens with Delta Qatar seems very comfortable in tangled webs.

  2. American executives in there most recent board meeting over their South American service plan… “Gol!!!!!!”

  3. Only marginally on-topic, but this really highlights American’s weakness in Canada. However (getting nitpicky), it overstates it a bit: is Alaska included? Because the AS service to YLW, YYC, YYJ, and YEG is all missing (YVR might be; hard to tell). In fact, it looks like the map may be missing all the Horizon-only service (small airports in WA/OR like EAT, RDM), as well as most of the Alaska service (nothing to southeast Alaska and nothing but ANC and FAI). All that stuff was operating in January 2020.

    1. The main problem is that unlike DL and UA, AA doesn’t have a partner that flies within Canada. UA has Air Canada and DL has Westjet, and right now there’s no major third airline for AA to work with nationwide – Flair is a LCC so it might not blend well with the AA/AS/B6 service mix, and with only 11 planes their frequencies are pretty limited.

      Right now the best they can probably do is to get an exclusive linkup with Porter to cover the east and see if Porter’s growth planes play out.

      1. The problem with Porter is everything would require some creativity using the Toronto downtown airport.

    2. Alex – You’re right, those Alaska Canada routes should be included. It only mildly helps, but it’s still better than what it looks like now.

  4. American could not have obtained a joint venture and Delta is pushing toward that which Latam clearly want. Latam’s bankruptcy is still in process including how much investors will retain but Delta’s ability to develop a joint venture is based on government approvals, not its equity investment. American and United have both made equity investments in global airlines that have not yet resulted in joint ventures and /or have seen those carriers reduce their operations in the target countries even pre-covid.
    Gol is a solid carrier but is predominantly a Brazilian airline with some service to Southern Cone countries and some to the Caribbean and more recently Florida. Like most Latin American airlines, there is limited or no premium cabin service on narrowbody aircraft. Gol is the largest airline within Brazil and was pre-covid but what they can connect to AA or the benefits that passengers can obtain between the two is all that matters.
    MIA is clearly the real focus of Latin America right now as Spirit aggressively grows domestically and into northern S. America. American has been the only U.S. airline from MIA to most of S. America for years so any competition will have an impact on AA, just as the growth of B6 NK and to a lesser extent WN has had on pricing from S. Florida to the Caribbean for years. Gol and other partnerships are much more about helping connecting AA passengers to/from AA’s global network – including MIA – than to try duplicate what Latam – the second largest international carrier at MIA and Delta – the second largest domestic carrier at MIA – might do as part of a JV or even as partners; the level of cooperation that Delta and Latam will have cannot be seen now because of the US limits on foreign passenger entry.
    Gol is a much more established company than AA’s other partners in Latin America and they have been one of the lowest cost producers in Latin America. With Aeromexico and Latam both pushing to be lower cost producers, it is hard to predict the outcome of partnerships or how well AA/G3 will end up competitively but Gol is one of the best partnerships AA could have pursued.

  5. Hey Cranky, unless I’m missing it, I don’t see the map of AA’s service/coverage with JetSmart and Gol added? I see it on the homepage as the pic for the article, but I’m not seeing it in the actual article.

  6. GOL didn’t work well for Delta as a partner. Tough to forecast what it will really do for AA, though given AA’s footprint in Brazil, that is likely the biggest difference. DL’s US-Brazil share was small pre LATAM.

  7. Gol just migrated its PSS platform to Sabre last week. That will be a major change in its favor compared to when they partnered with DL since AA is also hosted on them (albeit a very different proprietary partition).

  8. $200 million doesn’t buy much anymore. Consider that American paid $365 million for ALL of Eastern’s Miami assets and Latin/South American routes in 1989. Delta had that same opportunity, but it was so ATL-centric at the time that it let MIA go. Lorenzo didn’t care who he sold to. Given the staggering losses Delta has incurred with LATAM, their near-sightedness 30 years ago has proven VERY costly.

  9. Tim raised an extremely valid point in the first sentence of his comment. It was quite obvious that the proposed American/LATAM joint venture wasn’t going to pass regulatory muster, as it would have created a dominant combination between North and South America. Delta’s relatively small presence in South America is why its joint venture with LATAM has a much better chance to get approved. Most regulatory bodies look for what they think is in the public interest, and competitive balance is usually better for consumers than a single dominant carrier or joint venture.

    It should also be noted that American’s investments in South American carriers aren’t its first. It also bought a stake in China Southern. The whole issue of airline alliances versus joint ventures is one to watch going forward.

    As for Miami, I’m pretty sure American will be just fine there. I can’t see where Delta/LATAM will have a significant advantage over American/Gol or United/Azul, in transporting passengers between North and South America. I obviously see things a bit differently than most airline observers I read here and elsewhere, since I’m a firm believer that an airlines’ principal business is to provide transportation, not fancy furniture, entertainment, or food (which tend to be the primary focus of their comments). If Vasu Raja is correct (and I’m pretty sure he has better data than we do) this is not necessarily about connections, but creating a more complete offering for people living in South America, just as the American/jetBlue partnership is in New York. As an aside, the only airline that has a true connecting hub in New York is United at Newark. As for South America, there’s nothing wrong with a little more healthy competition. And who’s to say that Delta’s ultimate goal with LATAM isn’t to do exactly what American/Gol/JetSmart are doing. After all, airline executives have a much better handle on their customer base than we do. They have real-time and real-world data.

    At the end of the day, I’m pretty sure all of the affected airlines will find their market niches and serve them effectively. Last time I checked, it’s not a crime for airlines to have slightly different business models.

  10. Good comments as always, Ghost,
    The airline industry is always full of opportunities, some of which can be distractions from an airline’s primary focus.
    Delta has been #3 in Latin America for years but is not really at any more of a network disadvantage in terms of parts of the US covered to UA or the lack of Florida to Latin America which neither serve nonstop.
    DL had a very full plate of initiatives pre-covid and built the only post-deregulation hub which still survives with SEA; DL has long had a large presence in BOS and even RDU but they have built on both. BNA, AUS and SJC could easily have been distractions and DL trimmed that list. DL has grown its position in NYC, BOS and LAX and has surpassed UA in AUS. Btw, DL at JFK IS a true hub – just less global and with fewer domestic flights. LAX NYC and BOS are much more valuable markets than AUS while DL knows it will take every successful effort to break into MIA.
    MIA will have to be AA’s life or death strategic focus for the next few years – Latin America has been AA’s only consistently profitable global region because of their near US carrier monopoly from MIA to Latin America. It is naïve to think that AA will not be dramatically impacted by low-cost carrier growth and the re-emergence of restructured Latin American airlines at MIA.
    AA and Gol is simply not on the same level as a joint venture between Delta and Latam; joint ventures have helped AA in Japan and the UK just as they have DL and UA in other countries. Delta will have the advantage of having a joint venture to S. America while American has a size advantage.
    I doubt if Delta believes it will ever be a threat to AA in Latin American size but rather Delta intends to have a presence in the largest Latin markets, something United will not be able to duplicate because of DL’s expected JV with Latam.
    DL said that 25% of its Brazil passengers to/from Gol. Unless AA starts many more routes to secondary Brazil, Gol can deliver large amounts of traffic to American.

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