Earlier, I covered how Azul filed for Chapter 11 bankruptcy protection. On the surface, this isn’t a huge deal, since operations should continue as usual, and this is just a balance sheet exercise.
However, there’s one thing that piqued my interest — American Airlines is supporting the restructuring (financially), though it’s not entirely clear what this will look like. This is fascinating, because the two airlines don’t currently have a partnership, or anything to do with one another, really.
I want to talk a bit more about how this could all play out. When it comes to the evolution of partnerships, I think Latin America could be the most interesting region in the world at the moment.
In this post:
American & United struggle with a Latin America strategy
Historically, American was by far the strongest of the “big three” US carriers in Latin America. Not only did the airline have a massive network in Latin America, but the company also partnered with LATAM, the region’s largest carrier.
That all changed in 2019, when Delta announced it would invest in LATAM. Since then, LATAM has left the oneworld alliance, and has formed a joint venture with Delta. While Delta arguably overpaid for LATAM, this was still a big win for Delta in terms of its equity investment and joint venture strategy.
Meanwhile American and United have largely been going at it alone in Latin America, trying to figure out what to do, but for different reasons.
In the case of American, the airline clearly wants partnerships in Latin America. American has even invested in Brazil’s GOL, with an ownership stake of just over 5%. But of course GOL only flies 737s and doesn’t have business class, so it’s hardly a full replacement for what was lost with LATAM. It’s better than nothing, though.
In the case of United, the airline partners with mega carrier Avianca (they have mutual Star Alliance membership), also has a partnership with Brazil’s Azul, and also has a partnership with Panama’s Copa (which is of course in Central America, but same idea when it comes to connectivity). However, none of these partnerships are particularly strong:
- Avianca and Copa both have huge Latin America networks, but United doesn’t do much to feed traffic onto Avianca or Copa, and there’s no joint venture between the airlines
- United’s partnership with Azul has to be one of the most casual in the world; there’s frequent flyer reciprocity, but virtually no coordination otherwise, and barely even overlap with airports served
Azul, GOL, and Avianca, are all in complicated situations
On the Latin America front, I imagine we’re going to see some moves. For one, it’s worth emphasizing the challenging situations these airlines are in. Azul and GOL are both in Chapter 11 bankruptcy, with Azul having just entered, and GOL planning on emerging in the coming weeks.
Azul and GOL were actually pursuing a merger recently, but seemingly nothing could be worked out before Azul filed for bankruptcy.
While Avianca isn’t directly involved here, I think it’s still worth bringing up the airline when it coms to discussing future possible partnerships and alliances. That’s because Avianca and GOL are both majority owned by Abra Group. So even though the airlines have limited cooperation, they do have the same owners. On top of that, GOL has several other shareholders, including American, Air France-KLM, and more.
So of course an owner can decide that it’s best to run two brands totally independently. At the same time, if there are opportunities for a bigger deal, that has to be considered.
How I see these airline partnerships playing out
Like I said, I think we’re going to see some big things happen here. I could be totally wrong, but let me share how I’m reading the tea leaves.
I actually don’t think United is that interested in a lot of Latin America growth. If the airline wanted to form closer partnerships in Latin America, it has had every opportunity to do that with Avianca, which is the other mega carrier in Latin America (beyond LATAM). Now, that’s not to say United might not eventually be forced to do something for competitive reasons (if American figures out a strategy as well), but I just don’t think it’s one of United’s business priorities.
Meanwhile it’s clear that American has been trying to figure out a good Latin America strategy since losing LATAM, but has struggled. After all, options are limited — Avianca and LATAM are out of the picture, and the other players in the market don’t have much geographical breadth, and/or aren’t very global.
We’ve seen American invest in GOL, and now it sounds like American will also invest in Azul. I imagine that the way this plays out could look quite different depending on whether or not Azul and GOL ultimately merge.
It’s worth mentioning that United is also reportedly supporting Azul’s restructuring, though it’s not clear to what degree. On the surface that’s a bit more obvious, since the two airlines at least partner.There’s nothing preventing Azul from partnering with both American and United.
In terms of partnerships, Azul’s current issue is that its primary hub is in Viracopos (VCP), rather than in Sao Paulo Guarulhos (GRU). The airport is intended to serve the same region, but it’s just not an ideal setup, since it’s an airport that many people don’t think to fly to. Yes, Azul has some flights out of Sao Paulo Guarulhos, but if the goal is actually to have an integrated partnership that adds value, there needs to be more co-location.
Could we see a US airline try to make Viracopos more relevant to international travelers, or could we see Azul shift some more service to Sao Paulo? The issue is that Guarulhos Airport doesn’t have much space, so that could be challenging.
I know some people will say “well American could just connect people onto Azul flights to Brazil at US gateways.” The issue with that concept is that there would be limited upside for American with such an arrangement. Sure, maybe with a joint venture that could work, but it needs to be part of a larger strategy.
So I don’t know what all of this will end up looking like, but I’m mighty fascinated, as there are so many moving parts, and so many competing interests.
Bottom line
The airline dynamics in Latin America are about to get a lot more interesting, as we’re seeing American express interest in Azul, in addition to having already invested in GOL. On top of that, United already has a partnership with Azul and Avianca, with Avianca having the same primary owner as GOL. Complicating this even further is that Azul and GOL have been looking at a merger in recent times.
It’s anyone’s guess how this all plays out, but I imagine it’s going to be an interesting few years for aviation in South America….
How do you see this Latin America aviation situation playing out?
I just want to know what is going to happen to my Azul shares. How long is trading will be suspended?? Why this is not trading OTC yet??
The most important thing is that GOL stays as an Aeroplan partner, because linking a GOL flight with a UA flight avoids Aeroplan award dynamic pricing.
You can use flying blue miles for their flights- redemption rates are reasonable apart from the fact that they don't include luggage.
Ben,
"GOL only flies 737s and doesn’t have business class, so it’s hardly a full replacement for what was lost with LATAM."
On equivalent narrow body aircraft, LATAM doesn't have business class either. And, I'm fairly certain, GOL has more legroom vs LATAM.
An odd statement when LATAM doesn't have business class on the equivalent aircraft either.
Not sure what the latest on this is, but United, Avianca, and Copa were working on a joint venture in 2022: https://www.flightglobal.com/networks/avianca-copa-united-to-pursue-joint-venture-pact-under-new-conditions/150580.article. Both Avianca and Copa are also preferred partners, reflecting the closer relationship UA has with them. (It's otherwise only JV partners that are "preferred".)
I thought I remember reading there were delays since the Avianca was restructuring, and UA might also want to bring Azul into the fold, but maybe I remember wrong.
Not sure what the latest on this is, but United, Avianca, and Copa were working on a joint venture in 2022: https://www.flightglobal.com/networks/avianca-copa-united-to-pursue-joint-venture-pact-under-new-conditions/150580.article. Both Avianca and Copa are also preferred partners, reflecting the closer relationship UA has with them. (It's otherwise only JV partners that are "preferred".)
I thought I remember reading there were delays since the Avianca was restructuring, and UA might also want to bring Azul into the fold, but maybe I remember wrong.
There is no way that Avianca and Azul are happy with United. Through their lack of in-depth partnerships, UA has shown clear disregard for the market.
I'll admit that AV is a stretch, but Azul is a very realistic possibility. A joint business venture can be formed sooner rather than later (see AA/JL), and yes it would be complimentary.
The GRU/VCP split wouldn't be a big deal if there was a JBV.
Ben,
1/ Isn't it called a Threesome or does that term not apply to airlines?
2/ Re Viracopos: Before Guarulhos existed, Viracopos was Sao Paulo' long haul airport, about 70 miles away with (then) no freeway, to the point that VASP (disappeared airline) had expensive feeder flights from Congonhas for those who didn't want the 3 hour trek.
BUT... Viracopos is also the airport for Campinas, a nearby Brazilian city of some 1.3 milliion inhabitants....
Ben,
1/ Isn't it called a Threesome or does that term not apply to airlines?
2/ Re Viracopos: Before Guarulhos existed, Viracopos was Sao Paulo' long haul airport, about 70 miles away with (then) no freeway, to the point that VASP (disappeared airline) had expensive feeder flights from Congonhas for those who didn't want the 3 hour trek.
BUT... Viracopos is also the airport for Campinas, a nearby Brazilian city of some 1.3 milliion inhabitants. Plenty of airlines in the world have their headquarters and main hub in less populated cities.
São Paulo is simply a much larger city and GRU serves most of the demand - domestically from GRU and CGH and internationally from GRU.
VCP serves the much smaller local Campinas local market as well as connections that Azul connects through VCP.
They do not have a large size at GRU or CGH.
The problem w/ a Gol/Azul merger is not concentration in São Paulo which is the largest market in...
São Paulo is simply a much larger city and GRU serves most of the demand - domestically from GRU and CGH and internationally from GRU.
VCP serves the much smaller local Campinas local market as well as connections that Azul connects through VCP.
They do not have a large size at GRU or CGH.
The problem w/ a Gol/Azul merger is not concentration in São Paulo which is the largest market in Brazil but the many mid-sized cities that are dependent on connections and are competitive markets between the 3 carriers right now.
@Pierre - A threesome is a momentary act, a throuple is the term used to describe a relationship with three people.
interesting discussion and speculation based on what we know but Gol has not yet emerged from Chapter 11 although its plan of reorganization has been approved by the US bankruptcy court.
It is far easier to do a merger in bankruptcy or acquire a company directly out of bankruptcy but much harder to execute a merger after a company has already emerged as a planned standalone company.
While there are plenty of people that think...
interesting discussion and speculation based on what we know but Gol has not yet emerged from Chapter 11 although its plan of reorganization has been approved by the US bankruptcy court.
It is far easier to do a merger in bankruptcy or acquire a company directly out of bankruptcy but much harder to execute a merger after a company has already emerged as a planned standalone company.
While there are plenty of people that think that Brazil is going to allow the merger of 2 of the 3 large carriers, both Azul and Gol serve multiple countries in Latin America as well as the US - as do both AA and UA. A merger will require approval of those countries and even more so if a joint venture is proposed with a US carrier.
And joint ventures are where the real benefit is; AA could easily do a JV with Gol which does have some narrowbody flights to the US. Of course, Azul also has service to the US that largely duplicates what AA has - which will raise antitrust concerns.
as for the comment that DL overpaid for Latam, they really paid at the wrong time. They bought a couple billion dollars of Latam equity just weeks before covid broke out. DL has managed to retain its equity both in AeroMexico and Latam through their separate chapter 11 filings and DL is arguably in the best position in Latin America with AM and LA covering Latin America - although they do not have JVs with each other but rather each w/ DL. DL execs say that the DL/LA JV generates more revenue than any single airline in Latin America, meaning AA.
AA and UA couldn't do anything with DL's JVs with AM and LA but this presents the opportunity for one to beat out the other. With AA and UA trying to land the fatal blow against each other in Chicago and NYC, this fight will be one that AA has no choice but to win.
How is DL the best positioned in LATAM when it's #3 in revenue and capacity in LATAM behind UA and AA? Also LMAO on the revenue point for LATAM and DL - look at the numbers for FY24:
- AA LATAM revenue: ~$6.6B
- DL LATAM revenue: ~$4.0B (note: LATAM says DL holds 62% of the JV capacity)
- LATAM revenue: $12.7B: ~15% of this revenue is cargo and other income. Of the...
How is DL the best positioned in LATAM when it's #3 in revenue and capacity in LATAM behind UA and AA? Also LMAO on the revenue point for LATAM and DL - look at the numbers for FY24:
- AA LATAM revenue: ~$6.6B
- DL LATAM revenue: ~$4.0B (note: LATAM says DL holds 62% of the JV capacity)
- LATAM revenue: $12.7B: ~15% of this revenue is cargo and other income. Of the remaining passenger revenue (~$11B), ~45% of this revenue is intl (~$5B) of which the US is ~40% (~$2.0B) - not all of this revenue comes under the JV
If you would take even a second to fact-check your claims with actual data then you could make more accurate statements and speculation.
The loss of LATAM was a blow for AA, but as long as it has a fortress hub in MIA, it will dominate in Latin America to the US since MIA alone accounts for almost 50% of the US market.
The LATAM-DL JV has made little inroads in Miami - we'll see how the MIA-EZE route does for LATAM, but it was followed by capacity dumping by AA and Aerolineas Argentina that will hurt yields...
The loss of LATAM was a blow for AA, but as long as it has a fortress hub in MIA, it will dominate in Latin America to the US since MIA alone accounts for almost 50% of the US market.
The LATAM-DL JV has made little inroads in Miami - we'll see how the MIA-EZE route does for LATAM, but it was followed by capacity dumping by AA and Aerolineas Argentina that will hurt yields for all but especially the newcomer LATAM with little existing loyalty or corporate contracts.
Given there's more to AA's LATAM service including the Caribbean from Charlotte, Dallas, and from JFK (note that DL has retreated from much of JFK and LAX to close-in Central & South America since 2023 including JFK-BOG, LAX-SAN, LAX-GUA, LAX-MZT, etc. while operating routes like JFK-EZE seasonally vs AA's year-round). Add in competition from UA at IAH, there's little reason to see why AA would lose its position. There's always room to strengthen and take share in the chess match that is aviation.
take a step back from the cliff, son
I said that DL execs said that the DL/LA JV DOES generate more revenue than any single airline that serves Latin America.
Not a single number you wrote says that is not the case despite your manipulation of data to try very hard to keep from admitting that AA was dethroned.
In case you missed the distinction, I said that DL and LA are the largest...
take a step back from the cliff, son
I said that DL execs said that the DL/LA JV DOES generate more revenue than any single airline that serves Latin America.
Not a single number you wrote says that is not the case despite your manipulation of data to try very hard to keep from admitting that AA was dethroned.
In case you missed the distinction, I said that DL and LA are the largest TO S. America, not Latin America.
yes, DL and LA are the largest single entity to S. America.
AA frequently flies more capacity from MIA to S. America than AA.
DL clearly decided it is not necessary to provide a bunch of feed to LA in MIA since DL and LA can and do connect traffic over the rest of their combined network outside of MIA.
Yes, the loss of Latam was a blow to AA but it was a strategic failure to think they would have ever gotten it across the finish line.
and DL and LA are the largest carriers from both LAX and NYC to Latin America. not AA and not UA.
the only missing peace of the puzzle is when or if DL decides to add flights from MIA to Central America and the Caribbean. Given that DL has a JV with AM for MIA to Mexico, there is a whole lot less of the MIA market that DL doesn't access on its own metal or via a JV than you would like to believe.
Instead of lecturing me to check data, how about you read and comprehend the difference between Latin America and S. America.
even if we take your numbers, to have DL and LA within 10% of AA should scare the fire out of AA - and it does.
corrections
LA frequently flies more capacity from MIA to S. America than AA
the only missing piece...
If it makes United feel any better, in any throuple at least one party is basically just watching at any given point in time
Tell us you've never had that experience without telling us.
LOL that's not the own you think it is
Perhaps a fuselage-a-trois.
Nice
D'accord, tres bien !!
It's clear that AA is trying to find a way to regain the losses from the end of the LATAM partnership in South America. However, I am interested in how AA's new focus and investments on improving the experience for passengers will affect their ability to follow through on their South America strategy. Growing Azul at GRU or developing VCP will cost a lot of money. Is AA willing to take that on in conjunction...
It's clear that AA is trying to find a way to regain the losses from the end of the LATAM partnership in South America. However, I am interested in how AA's new focus and investments on improving the experience for passengers will affect their ability to follow through on their South America strategy. Growing Azul at GRU or developing VCP will cost a lot of money. Is AA willing to take that on in conjunction with their investments in themselves? They are already in debt from their fleet renewal since the US Airways merger and with their subpar profits compared to DL and UA, I'm curious if they will follow through on such a strategy for South America. Perhaps they will find other investors for Azul to finance such a project? This is extremely interesting and I also look forward to watching this unfold!
I suspect that the folks at AA don't really understand the competitive landscape in that part of the world. That's not really a criticism of them - after all, I wouldn't profess to understand, or have any interest in, the business model of Southwest Airlines- but the lack of knowledge couldn't possibly help in their efforts to set up partnerships etc.
Also, the South American JetSMART is now part of the AAdvantage® program. Flying JetSmart earns AA miles. Redeeming AA miles for JetSmart flights is not yet available.
Avianca leaving *A and going to OW sure would be interesting! AA's MIA/JFK focus could be a lot more appealing for connectivity, and United would still have Copa in that part of the world to partner with.
I don't think that's going to happen. Why would AV want to leave the biggest alliance in the world?
Simply put Avianca has much better OneWorld hubs than *A.
People from Colombia and Latin American in general are going to Madrid and Miami both strong OW locations. They are not going to Houston and Frankfurt. Not in the same numbers at least.
They used to fly to MUC and can start doing that again. If anything, Iberia is one of their biggest competitors, and it retains a close relationship with their arch rivals LATAM. At the same time, LH/LX often publish fares to Chile/Bolivia/Paraguay with connections on Avianca beyond BOG. Defecting doesn't seem too clever to me from an AV perspective, although stranger things have certainly happened in the past.
Reminds me of 1989, when a dying Pan Am announced a "groundbreaking" partnership with Malev, the wet-toast airline of freshly ex-communist Hungary.
It was the best date Pan Am could get, given the state they were in. They couldn't get Lufthansa, or Alitalia, or Air France, or British Airways, or Swissair. Just Malev, an airline even most Europeans had never heard of.
United is friends with Copa too, no? Not exactly S. America but feeds into much of it.
@ Andrew -- Good point, added that to post as well, thanks!