Fasten Seat Belts: Why Latam Airlines Will Be A Game Changer

When Cueto Met Amaro: In the works for 7 years, the Latam merger will shake up the regional landscape.

When Chile’s LAN and Brazil’s TAM, two of Latin America’s most efficient and profitable carriers, announced plans to combine operations, the headlines trumpeted the superlatives: the region’s largest fleet, 115 destinations in 23 countries, $8.5 billion valuation, $400 million in annual cost savings, and the list goes on.

But the combined operations and creation of Latam Airlines Group (LAG) trumpeted in the global financial press has been downplayed here in Argentina, and Carlos Manzoni of La Nacion tells us why. “The merger will be a blow to Aerolíneas Argentinas (AR), because Aeroli­neas will have to compete with (Latam) in the two most important routes they have: Chile and Brazil. They are going to lose market share when they should be gaining ground.”

If Argentina decides to makes life more difficult for Latam, Manzoni says, the new carrier can retaliate in a few different ways. TAM could stifle the flow of Brazilian tourists to Bariloche during ski season by routing flights to Valle Nevado in Chile instead. Likewise, LAN could opt to shut down trans-Atlantic service from Ezeiza to Europe, and channel those flights in and out of Sao Paulo instead. Either way, it will be a new airline landscape where Latam dominates as the big continental carrier, while small regional airlines like Gol and Pluna continue to gain market share exploiting the low-cost niche.

In closing, Manzoni says the courtship between the Cueto (LAN) and Amaro (TAM) families has been ongoing since 2003. Now that the nuptials are pending, let’s see if old regional flames try to spoil the honeymoon. (Full article in Spanish)