The proposed tie-up between LATAM Airlines and Delta Air Lines is casting fresh light on the outdatedness of global airline alliances. Delta revealed last week that it is spending USD1.9 billion to take a 20% stake in LATAM, and the two airlines plans to pursue a JV. LATAM also plans to leave the oneworld alliance and remain independent.
One of the predecessors to LATAM, LAN Airlines has been a member of oneworld for about 18 years, and TAM Airlines formally joined the alliance in 2014 after its merger with LAN. Now that it is pursuing a deep and broad relationship with Delta, LATAM plans to exit oneworld and remain independent. LATAM is showing little trepidation about leaving oneworld, and the shift points to growing opinions that alliances could increasingly become outdated.
Delta is an anchor member of SkyTeam, and its JV with fellow alliance members Air France-KLM has been a success. But its tie-ups with GOL, Virgin Atlantic and WestJet show that alliances don’t offer the network breadth and depth airlines operating in today’s global aviation industry need.
Delta in particular needed a strong partner in Latin America, as its CEO Ed Bastian noted total annual revenue from South America to the US is roughly USD8 billion and LATAM’s business from South America to the US is roughly USD1.6 billion annually.
GOL provided Delta with a strong position in Brazil’s domestic market, but LATAM is a strong number two in that space with a 31.3% domestic market share in Brazil behind GOL’s 35% share (based on ANAC data for the 1H2019). LATAM also has a leading position (number one or two) in the growing markets of Peru, Ecuador, Argentina and Colombia as well as its long held position as Chile’s largest airline.
In light of the agreement with LATAM, Delta’s partnership with GOL has ended and its chief accounting officer and SVP finance and controller, William Charles Carroll, has resigned with immediate effect from its board. The alliance was first announced in Dec-2011 and GOL has described Delta as a “terrific partner”. It notes the phase out of its Delta codeshare and the US carrier’s investment in Gol’s non-voting shares is not expected to have a significant financial impact as the current relationship provided just 0.3% of GOL’s total revenues.
Delta’s moves are sure to raise further speculation that it could ultimately choose to break-up SkyTeam and instead build a new generation global network outside of the barriers of alliance membership. Mr Bastian has remarked that alliances have been slow to deliver on certain promises around technology.
“And so, we are not going to sit around and wait for the alliances to develop their technologies. We’re working with them. But it’s also important that Delta take control of our customer experiences into our own hands as best we can. So we’re building on a bilateral basis,” he said.
Oneworld has said it is “disappointed” to be losing LATAM as an alliance member but that it respect the airline’s decision. “They have been a valued long-term member of the alliance, and we wish them well,” it adds. On its future it says that oneworld “remains a strong coalition of high-quality airlines” and that within the alliance “there has been significant progress in member airlines deepening their bilateral relationships,” as evidenced by the recent regulatory approval of the American Airlines and Qantas joint business.
LATAM and oneworld founding member American Airlines had previously planned their own joint business agreement.
Delta says its planned strategic partnership with LATAM “will unlock new growth opportunities” that will build upon existing joint ventures worldwide, including Delta’s partnership with Aeroméxico. Delta will also acquire four Airbus A350 aircraft from LATAM and has agreed to assume LATAM’s commitment to purchase 10 additional A350 aircraft to be delivered beginning in 2020 through 2025, to support its own ongoing fleet transformation.