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South American airline LATAM has confirmed that it will be withdrawing from the oneworld alliance following the airline’s decision to cease joint venture negotiations with American Airlines and enter into a partnership with Delta instead.
Since the Chilean Supreme Court ruled against a potential joint venture between American Airlines and LATAM earlier this year both airlines have been struggling to find a way that a future joint venture would be profitable without the inclusion of Chile in the agreement…and now they’ve agreed to give up.
Not only have American and LATAM agreed to go their separate ways but, in a move that has caught a lot of people by surprise, LATAM and Delta have announced a partnership which will see the Delta taking a substantial stake in the South American carrier as well as taking on some of LATAM’s aircraft purchasing obligations.
Here’s what some of the parties have had to say about this situation…starting with American Airlines:
LATAM and the Cueto family have been terrific partners of American Airlines for decades. Given the recent negative ruling by the Chilean Supreme Court, which would have significantly reduced the benefits of our partnership since Chile was not approved as a part of the potential joint business arrangement, we understand LATAM’s decision to partner with a U.S. carrier that isn’t burdened by the ruling.
Oneworld has confirmed LATAM’s decision to leave the alliance:
LATAM advised oneworld earlier today of their decision to partner with an airline outside of the oneworld alliance. LATAM further advised oneworld that they intend to leave the alliance in due course and in accordance with formal contractual requirements. We are disappointed, but we respect their decision. They have been a valued long-term member of the alliance, and we wish them well.
And Delta seems very happy with its new partner and revealed details of what the partnership would include:
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- Delta will invest $1.9 billion for a 20 percent stake in LATAM through a public tender offer at $16 per share, to be funded principally with newly issued debt and available cash.
- Delta will also invest $350 million to support the establishment of the strategic partnership.
- Delta will acquire four 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, supporting Delta’s ongoing fleet transformation.
- Delta will be represented on LATAM’s Board of Directors, further strengthening the relationship.
What This Means For Flyers
From a oneworld perspective, this isn’t good news.
No date has been set for LATAM’s exit from the alliance but, with LATAM gone, oneworld will not have any representation in South America – flyers will have to rely on the likes of American Airlines and Iberia to get them to South America but how oneworld travelers will connect on to regional flights is now far from clear.
While LATAM remains in the oneworld alliance nothing will change and oneworld elites will continue to be able to enjoy the benefits that their status bestows upon them and will continue to be able to credit LATAM flights to the oneworld alliance of their choice.
This, however, all stops the moment LATAM officially bid adios to oneworld.
Lounge privileges and other status benefits will cease to be offered to members of the various oneworld airline loyalty programs, and flyers will no longer be able to redeem AAdvantage Miles, Avios, Asia Miles etc… on the South American carrier.
American Airlines and oneworld have already said that they will be working with LATAM to ensure that oneworld flyers with existing bookings on LATAM face as little disruption as possible.
What This Means For The Airlines & Alliances
From an American Airlines perspective, this is more than a little embarrassing…but for once it’s not entirely management’s fault.
American appears to have done all it can to make a joint venture with LATAM work but, when the airlines failed to convince the Chilean Supreme Court that their proposed partnership would benefit flyers and workers and wouldn’t limit competition, the writing was on the wall.
It’s hard to make a regional joint venture work when one of the major countries in that region says that your partnership is not welcome.
From Delta’s perspective, this is a big point scoring win over a major domestic rival and a win that sees it go from being an insignificant player in South America to a real big hitter.
The move to take a significant stake in a partner airline is now part and parcel of Delta’s playbook and it’s something we’ve seen the airline do multiple times in the past with the likes of Virgin Atlantic, Air France/KLM, Korean Air, and China Eastern.
Delta has agreed to give up its 9% stake in Brazil’s GOL in order to help ensure that the new partnership doesn’t suffer the same fate as American’s ill-fated attempt to partner with LATAM but anyone hoping that this neas will see LATAM join SkyTeam may be in for disappointment.
I don’t think LATAM will join SkyTeam.
Delta has long been making noises about how unsatisfactory SkyTeam has been at generating incremental revenue and the fact that it hasn’t used its 49% stake to draw Virgin Atlantic into SkyTeam speaks volumes for where Delta’s priorities lie.
Delta is in the process of building up a portfolio of investments in airlines around the world that it then uses to enter into strategic partnerships with the same airlines. These partnerships appear to (mostly) work quite well for Delta so the airline’s need for SkyTeam is dwindling by the day.
I can’t see what Delta or LATAM would gain if LATAM was to join SkyTeam.
Bottom Line
I have to take my hat off to Delta on this one – it saw weakness and it pounced with great success.
The biggest losers in all this are oneworld flyers who will soon be without a South American carrier and it will be interesting to see how (if?) oneworld attempts to fill that void – getting to South America won’t really be an issue but flying seamlessly within the continent almost certainly will be.
American will still have its sizeable route network between the US and South America to fall back on but despite the claims that “this change in partnership is not expected to have a significant financial impact to American, as the current relationship provided less than $20 million of incremental revenue“, yesterday was another bad day at the office for Doug Parker and Co.
The collapse of American’s ambitions to partner with LATAM may not be entirely Doug Parker’s fault but you still have to wonder just how much longer the airline’s shareholders will give him (and his team) considering nothing seems to be going right at American right now.
They’ve appeared patient so far but I suspect he can hear the clock ticking.
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