Developing Europe – Latin America market becoming a key battlefield for Europe’s airline leaders

The formation of LATAM Airlines Group from the amalgamation of South American heavyweights LAN Airlines and TAM Airlines has established a major force in the region and a market that is increasingly growing in importance to Europe’s leading airlines. The new Air France-KLM and Air Europa metal neutral joint venture on Europe-Central/South America routes is just one example of how they are working to ensure they retain a relevant involvement in this marketplace.


Summary:

  • New Air France-KLM and Air Europa metal neutral joint venture on Europe-Central/South America routes an example of how airlines are positioning themselves to ensure they retain a relevant involvement in this marketplace;
  • Air France-KLM and Spain’s Air Europa – already codeshare partners on European routes – are adapting to the threat of increasing control from International Airlines Group (IAG), parent of Iberia and British Airways, through a planned joint venture with LATAM;
  • Iberia is market leader between Europe and Latin America, but Air France-KLM is currently the leading group, a position threatened by the new IAG and LATAM JV;
  • The Air France-KLM JV should launch in the summer of 2019, and a CAPA analysis claims it will bring notable network benefits to each side despite their existing operations.

An insight analysis from respected aviation intelligence specialist CAPA – Centre for Aviation highlights how Air France-KLM and Spain’s Air Europa – already codeshare partners on European routes – are adapting to the threat of increasing control from International Airlines Group (IAG), parent of Iberia and British Airways, through a planned joint venture with LATAM.

CAPA’s ‘Air France-KLM, Air Europa JV: EUR-Latin America aviation transforming‘ report shows that the Europe-Latin America market is dominated by European airlines and currently led by Air France-KLM, although IAG’s Iberia is the biggest individual airline presence in this market.

According to data from OAG for the week of 13-Aug-2018, Air France is the number two airline by seats between Europe and Latin America, with 10.8% of seats and only fractionally behind Iberia, which has 11.1%. Air Europa is number three, with 7.3% of seats, and KLM is number four, also with 7.3%. In terms of airline groups, Air France-KLM has a combined share of 18.1% – a clear lead over IAG, which has 15.9% (British Airways has 4.8%).

However, the planned joint venture between IAG and LATAM Group would have a seat share of 22.1%, taking it ahead of Air France-KLM, albeit the Air France-KLM/Air Europa joint venture would reclaim the lead, with 25.4% of seats.

CAPA says Air France-KLM and Air Europa are deliberating the detail of a collaboration that will widen and deepen existing commercial cooperation between Air Europa and both Air France and KLM over more than 15 years. This includes “an in-depth legal analysis of the terms of this possible future agreement in order to ensure compliance with all applicable laws and regulations”.

It is expected that the joint venture might launch in the summer of 2019, bringing notable benefits to each side despite their existing operations. The CAPA analysis highlights that in the market between Europe and Latin America (excluding the Caribbean), Air Europa has 15 destinations, while Air France has 13 and KLM has 14. As a group, Air France-KLM has 18 unique destinations (nine are served by both of its main airlines).

There are four destinations served by all three airlines (Bogotá, Buenos Aires, São Paulo and Lima) and four more destinations that are served by both Air Europa and one of the Air France-KLM airlines (Cancún, Caracas, Guayaquil and Quito). Nevertheless, both sides will bring to the joint venture a significant number of destinations not served by the other party.

Notably, Air Europa serves seven destinations not served by Air France-KLM (Asunción, Córdoba, Montevideo, Recife, Salvador, San Pedro and Santa Cruz). All but one of these (Montevideo) are not served by either BA or Iberia, so Air Europa will bring to Air France-KLM six destinations not served by IAG.

Meanwhile, Air France-KLM serves 10 destinations not served by Air Europa (Cartagena, Cayenne, Curaçao, Fortaleza, Mexico City, Panama City, Paramaribo, Rio de Janeiro, San José and Santiago). Half of these destinations are not served by Iberia (or BA), so Air France-KLM will bring to Air Europa five destinations not served by its main rival.

While there remains much detail to be worked through by Air Europa and Air France-KLM, at first sight, the proposed new deal between the two looks to be positive for both sides. There may be some concerns from competition authorities and an important related element will be to ensure sufficient feed and beyond traffic in Latin America, but as CAPA concludes “a joint venture between Air France-KLM and Air Europa looks like a suitably aggressive response” to IAG and LATAM’s own plans for the market.