OAG, perhaps the most authoritative source of information on the global airline industry, said it all and said it succinctly through an analytical report on the news of Delta’s investment in LATAM: “With the dust only just settling on Delta Air Lines $1.9 billion, 20 percent investment in LATAM Airlines, the long-term impact on the Americas aviation market will be dramatic. The speed of the agreement and subsequent changes that will result in both competitive structures and airline alliances probably makes this the investment of the year or indeed the deal of the decade in the aviation sector.”
Until the surprise news of the major investment, LATAM had already been regarded as the airline of Latin America. The carrier is the result of a June 2012 merger between LAN Airlines of Chile and TAM Airlines of Brazil. Brand loyalty being what it is, one will still find instances of Chilean and/or Brazilian nationals referring to them as LAN or TAM. The recognition of the LATAM brand has slowly but steadily grown.
What happens when a carrier such as Delta Air Lines makes a move to own that much of another global airline? The answer gets complicated when one realizes that American, Delta and United (the world’s largest, second largest and third largest, respectively) are also the dominant carriers in their respective alliances: they are Oneworld (American), Skyteam (Delta) and Star Alliance (United).
Much like the ripple one sees spreading out from the point at which a stone was thrown into a small pond, the keen observer will see ripples spread their way through the world’s global airline industry. They will also have an impact on the other suppliers in the travel distribution system and the many partnerships, joint ventures and reciprocal marketing and promotional agreements that bind the industry sectors to one another .
Making sense out of all of the above is John Grant, the OAG analyst who tells us: “At a global level securing an investment in the largest airline in Latin America has tremendous strategic value and also alters the global airline alliance structures as the two charts below highlight. A near four percentage point shift between two alliances is very rare and although having no impact on the largest global alliance (Star), it does create a wider gap in position when compared to OneWorld”
Of Chart 2 above, Grant said: “A major part of the attraction for Delta Air Lines of LATAM is the complementary rather than competitive nature of their respective as the table below shows. Perhaps surprisingly there is no network overlap between the two airlines making for an enhanced network for Delta Air Lines and Delta’s position will be boosted significantly by LATAM’s strong position in South America.”