As interesting as the US airline market is these days, it’s hard to beat what’s going on in South America. There seems to be nonstop action, and Avianca is leading the way by doing all sorts of deals. Last week it was an acquisition of domestic rival Viva and now it’s a tie-up with Brazilian airline Gol. There may be more on the horizon.

Avianca has been quite the confused airline over the years… and it has had a lot of years to get confused since it’s one of the oldest airlines in the world at over 100 years old. It has always been a Colombian-based company, acting as the country’s flag carrier since 1919, albeit then named SCADTA. Colombia is a strong market, but the high altitude and constrained airport in Bogotá means the capital has never lived up to its hub potential.

After a stint in bankruptcy, the airline was bought out by Germán Efromovich’s Synergy Group in 2004, a company that already owned OceanAir in Brazil and had big plans, but it would take about 5 years before things really shifted.

In 2009, Synergy had purchased Aerogal out of Ecuador, but that was nothing compared to the blockbuster 2010 merger with Grupo TACA out of El Salvador, the airline that blanketed Central America and was one of the more successful airlines flying in Latin America.

Synergy then went through an effort to standardize under the Avianca brand, including with Aerogal and OceanAir as Avianca Ecuador and Avianca Brasil respectively, though the later remained a separate company and simply used the name. In 2013, the TACA name was retired, and then just a couple years later, Synergy bought a small Argentinian airline called Macair Jet. This company, like Avianca Brasil, remained independent, but it used the Avianca Argentina name.

This whole house of cards came tumbling down over the last few years. Both Avianca Brasil and Avianca Argentina failed. Synergy lost control of Avianca with former Grupo TACA boss Roberto Kriete taking over. The airline shut down its Peruvian subsidiary and decided to focus on Colombia, Central America, and Ecuador only.

The airline went bankrupt again and came out ready to remake itself with a lower-cost, lower-fare version of itself, especially on the hotly-contested short-haul markets. It cleaned up its fleet, densified the product, and shifted to a new CEO for the second time in a couple years.

From this new baseline, Avianca started to lay down its plans. First up was a financial transaction with Sky Airline in Chile, but I’ll get to that later. The first big move was just a couple weeks ago when it effectively acquired its large and growing domestic rival, Viva. This wasn’t a typical acquisition in that the airline said it would keep the two brands and companies separate to “comply with regulations of Colombia and other countries.”

Considering Avianca’s downmarket move in short-haul markets, this seemed like a natural effort to bring these two together in order to strengthen the position against LATAM in both Colombia and Peru where Viva had expanded in recent years. I still imagine that a full merger will some day happen if the authorities allow it. But for now, they’ll remain separate.

Last week, the second shoe dropped with Avianca and Gol coming together under common ownership in a new company called Abra Group. Again, the airlines will remain separate, but ownership will be consolidated. Unlike the other merger which gives Avianca depth, this is about breadth. Let’s look at the numbers.

Departing Seat Share by Airline by Country – July 2022

Above are the seven largest country markets in South America by number of seats. In Colombia, Avianca will now have an even more commanding position while in Peru it will still remain a minor player but one that is at least marginally stronger. In Brazil, Avianca adds little value on its own, but with Gol in the market it becomes an instant player.

These tie-ups now give Avianca/Viva/Gol an important position in 3 of the top 7 markets. Visually it looks like this vs LATAM from a South America-only network perspective:

As you can see, the coverage vs LATAM in Brazil and in the northwest of the continent is solid. It’s further down along the western coast that shows weakness, but just wait… there’s likely more coming.

Last year, there was a press release announcing that Sky Airline out of Chile would become a subsidiary of Avianca. This proved to be premature, to say the least, but the Abra press release notes more than once that the deal includes “convertible debt representing a minority interest investment in Chile’s Sky Airline.”

What happens if Sky is brought into the fold?

Well look at that. Combined with Sky, Avianca would be a clear number two in Chile with nearly 20 percent of the market, and the same in Peru with about 15 percent. This gives Avianca a meaningful presence in the top 5 South American markets where there’s actually an ability to have a meaningful presence. (I exclude Argentina and Bolivia because protectionist policies in each country effectively keep any external airlines from becoming competitive.)

A look at the July 2022 schedule shows that bringing all these airlines together would create something slightly larger than LATAM with 7.9 million seats on just over 45,000 departures compared to 7.7 million seats on just shy of 42,500 departures at LATAM. This, of course, might not stay that way. There would be rationalization of capacity and all that, but it competes a meaningful, viable second airline in South America.

What this means for partners is a whole different question since Avianca is tied to United while Gol is with American. But that is something that can be addressed in the future. For now, this is about consolidating in a market where there’s long been just one major player.