Wow: American Airlines Investing In South America’s JetSMART

Wow: American Airlines Investing In South America’s JetSMART

27

Well this is kind of coming out of nowhere…

New American Airlines & JetSMART partnership

American Airlines and JetSMART have signed a letter of intent to create “the broadest and most rewarding network in the Americas.”

Before we get into the details, perhaps some context is important. JetSMART is an ultra low cost carrier in South America, that operates primarily out of Argentina and Chile, currently serving 33 destinations. The company was founded in 2016, and is owned by Indigo Partners, which also owns ultra low cost carrier Frontier Airlines. JetSMART operates a fleet of 20 Airbus A320 family aircraft, with an additional 79 A320 family aircraft on order.

So, what does this new partnership between American Airlines and JetSMART look like? Subject to regulatory approval, here are the plans:

  • American will acquire a minority ownership stake in JetSMART, and will provide the airline with more capital, to allow for the ultra low cost carrier to grow rapidly, and become “the leading South American low cost carrier”
  • Customers will be able to earn and redeem AAdvantage miles on JetSMART flights, and the two airlines will codeshare on routes
  • American believes this will create “a compelling customer offering in Latin America,” and also claims that this will “create the broadest network and most rewarding customer offering in the Americas” (which seems… subjective)

Here’s a map of the potential connecting opportunities between the two airlines:

Here’s how American Airlines Chief Revenue Officer Vasu Raja describes this strategy:

“This proposed investment in JetSMART would give customers access to the largest network, lowest fares, and best travel loyalty program in the Americas. This would enable JetSMART and American to grow aggressively and profitably across Latin America as demand recovers, while preserving the best aspects of each carrier’s business model. This partnership would also make AAdvantage the largest travel loyalty program in the Americas, creating more ways for customers to earn travel rewards and use their miles to access new destinations and elite benefits globally, no matter whether they earn in Latin or North America.”

JetSMART Airbus A320neo

My take on this investment & partnership

American Airlines has long been the leading global US airline in Latin America. American operated many routes to Latin America, and then had plenty of connectivity thanks to its oneworld partner LATAM. All of that changed in 2019, when Delta bought a 20% stake in LATAM. With this, LATAM left oneworld, and ended its partnership with American.

American has been trying to rebuild its connectivity within Latin America. First American announced it was forming a closer relationship with Brazilian low cost carrier GOL, and now American is partnering with JetSMART.

Here’s my general take:

  • Obviously more connectivity is good, and this is better than nothing, but it’s still kind of hard to get excited about this, especially for premium traffic; JetSMART planes are in a one class configuration, and A320neos have a staggering 186 seats
  • American sure is trying just about everything when it comes to partnerships, and I suppose that’s to be commended; if this all happens, on a single ticket you could eventually fly JetBlue, American, and JetSMART, all traveling between North America and South America
  • While it makes sense, there’s something funny about American investing in an airline owned by Frontier’s parent company
  • It seems like the upside to this loyalty program collaboration is limited; the first fare I pulled up on JetSMART’s website was $12, so it’s not like I’m going to redeem miles for that, and if I pay I doubt it’ll enrich my AAdvantage account all that much 😉

Bottom line

American Airlines intends to invest in JetSMART, in order to help the South American ultra low cost carrier grow quickly. The two airlines also intend to form a partnership, which would include a codeshare agreement, as well as the ability for AAdvantage members to earn and redeem miles for JetSMART flights.

With American having lost the LATAM partnership, it’s now looking to GOL and JetSMART to fill that void. American is doing the best it can given the circumstances, but I still have a hard time getting excited about this.

What do you make of this new American & JetSMART partnership?

Conversations (27)
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  1. Apso Eyot

    Sad for AA. For their South America feed network, they’ve rapidly gone from having this solid, robust, and long-standing partnership with LATAM that looked like it wasn’t going anywhere, to having to pick up the remaining scraps - those LCCs and ULCCs - out of utter desperation, now that there’s no longer another major South American carrier without a US partner. Simply because they were unable to do something to prevent LATAM, who always seemed...

    Sad for AA. For their South America feed network, they’ve rapidly gone from having this solid, robust, and long-standing partnership with LATAM that looked like it wasn’t going anywhere, to having to pick up the remaining scraps - those LCCs and ULCCs - out of utter desperation, now that there’s no longer another major South American carrier without a US partner. Simply because they were unable to do something to prevent LATAM, who always seemed to be their close friend, from just turning their back on them completely, or at least try to reconcile with LATAM again, given what a mistake this breakup was IMO. Before, the full-service airlines in South America were perfectly balanced, with Copa and Avianca in Star Alliance (with UA), the LATAM Group in Oneworld (with AA) and Aerolíneas Argentinas in Skyteam (with DL). And Azul’s partnership with United worked well. Now, it seems like Skyteam’s network has become too dominant in deep South America. The whole situation just sucks, and it’s hard to imagine that AA and LATAM are no longer partners at all, for if they still were, we wouldn’t have to see these bandaid moves from AA. It makes no sense for those premium AA and oneworld flyers to have to connect from a premium to an ULCC product.

    But hey, I guess it’s fitting, given that AA has shown their commitment to being basically nothing more than a ULCC with full-service prices (particularly on domestic and short-haul), so it’s only fitting that they go ahead and partner with other ULCCs.

  2. Radio

    "(T)here’s something funny about American investing in an airline owned by Frontier’s parent company."

    --------------

    FYI - Bill Franke, Indigo's founder, was the CEO of America West and hired Doug Parker.

  3. Albert Dallas

    Where’d American get the money to invest in another airline?

    1. Eskimo

      Depending on which American you ask but this statement should cover both.

      Money is probably from CARES Act (the airline) which is money printed from your future 2027 taxes (the country).

  4. PDT

    AA really wants to be a LCC. Unfortunately, the first C is not possible. This would have been an awesome Spirit partner! (AA execs are really throwing spaghetti against the wall.)

  5. Echo

    Maybe AA will learn a thing or two from them; acquire Spirit, Frontier, and/or Allegiant; and finally double down on being the airline it has always wanted to be.

  6. Dan

    Honestly, I think AA is pretending to be a premier airline while running it like a low cost carrier. Maybe not ultimate low cost carrier but low cost. If American could just own what they are I think you’ll see customer satisfaction go up. If people buy a ticket knowing what to expect then customers are happier. I’m not saying ditch first class or premium economy, but let’s just stop the charade that AA is...

    Honestly, I think AA is pretending to be a premier airline while running it like a low cost carrier. Maybe not ultimate low cost carrier but low cost. If American could just own what they are I think you’ll see customer satisfaction go up. If people buy a ticket knowing what to expect then customers are happier. I’m not saying ditch first class or premium economy, but let’s just stop the charade that AA is a high class airline. Just own it and make it the best airline in that category. AA could be a fantastic mid-tier airline but they are spending all their time and energy pretending to be something they aren’t.

    1. Joseph

      High-costs, low-class - that’s the AA I know.

  7. stogieguy7

    LATAM has been struggling financially, so this is a good way to try to put more pressure on them (and DL) for daring to run off together. Yes, LATAM has premium class seating/amenities, but most of these segments aren't all that long anyway. And LATAM's fleet is on the old side; not helped by offloading their A350's while still leaning on the same 767's that I flew on back when they were LAN Chile.

    1. Tim Dunn

      Latam is in Chapter 11 bankruptcy in the US and will come out much leaner, just like the big 3 (and their predecessor/merger partners) did.
      They fly a fleet of 787s which is why they got rid of their A350s. They kept their 777-300ERs.
      Latin America is not going to be a region for premium travel amenities. Partnerships w/ global airlines are about connectivity between more of Latin America and the rest of...

      Latam is in Chapter 11 bankruptcy in the US and will come out much leaner, just like the big 3 (and their predecessor/merger partners) did.
      They fly a fleet of 787s which is why they got rid of their A350s. They kept their 777-300ERs.
      Latin America is not going to be a region for premium travel amenities. Partnerships w/ global airlines are about connectivity between more of Latin America and the rest of the world. Latam just happens to also be a global carrier - just not on the scale of American, Delta or United.

  8. Eskimo

    Wait so this where my tax dollars went?

    The bailout money that was supposed to keep airlines afloat and feeding their employees.
    The money ending up in the pockets of a Private Equity Firm?

    Yep CARES act finally made its way back to the pockets of Wall Street.

  9. MaxPower

    I get the overall point, but LATAM isn’t much more than an LCC product domestically either. I can’t imagine a one class LATAM flight vs a one class JetSMART is all that different except that LATAM has higher costs.

    1. Max

      Since last year LATAM has at least Premium Economy service in all its flights, including domestic ones. Premium Economy in LATAM is pretty similar to intraeuropean business class.

    2. Maxpower

      It’s the same economy seat but with a middle blocked.
      That’s not premium economy, it’s a very cheap substitute. and it’s very easy to replicate by Jetsmart if they want or it ends up being any kind of product differentiation.

    3. Andy

      It's not just the middle seat blocking, also the pitch is (much) more generous: 34 inch in PE vs. 28 inch (ouch!) in Economy. These 6 inches are very well noticable ...

    4. Max

      Is not the same. As Andy mentioned the pitch is bigger. Also, you get drinks and snacks for free. And lastly, Jetsmart seats don't recline. Imaging going from Santiago to Lima or Cali in a seat with a pitch of 28 and that doesn't recline. Ouch.

  10. Jason

    Sad that some of the names of the cities on that map are misspelled...

    1. Ricardo

      Neuquén and Ushuaia...Also, AA just announced that is not flying to Manaus anymore.

  11. Greg

    When did AAdvantage stop being the largest loyalty program in the Americas?

  12. Tim Dunn

    There just aren't a whole lot of airlines in Latin America that are worthy of investment. Indigo flips airlines so is happy to see someone invest that might make one of their carriers more stable in the long-term.
    The product inconsistency is notable. Latam and AeroMexico are both positioning themselves as much lower cost airlines - perhaps as ULCCs compared to US cost levels - but I would bet that Latam and AeroMexico will...

    There just aren't a whole lot of airlines in Latin America that are worthy of investment. Indigo flips airlines so is happy to see someone invest that might make one of their carriers more stable in the long-term.
    The product inconsistency is notable. Latam and AeroMexico are both positioning themselves as much lower cost airlines - perhaps as ULCCs compared to US cost levels - but I would bet that Latam and AeroMexico will remain as ULCCs but with full service type products. Gol is not a full service airline but is very cost efficient.
    The bigger takeaway is that Delta-Latam and potentially United and whoever it partners with will be a strategic threat to American and they have to come up with something viable to counter even if it means a multitude of partnerships.

    1. Denis

      I believe United gave up with South America. They hardly have choices so probably it's a right thing to give up for them. In the long run this market could be a key for any US airline with tremendous growth potential. At the moment though... United has nothing worthwhile to invest into. SKY in Chile and that's it. Not worth bothering.

  13. Ryan

    So I'm a business traveler on a paid J seat. AA's solution is for me to transfer to a ULCC for my final, intra-South America leg? Not good enough.

    1. KS

      You do realize that this is the same offering LATAM has on their narrow body network (if not worse)?

    2. Ryan

      At least LATAM offered lounges and Oneworld status recognition. This is not an acceptable substitute. AA's money should be going toward setting up a small premium cabin at the front of the aircraft for its connecting business class passengers.

    3. Denis

      LAN doesn't have a single domestic lounge in Chile. What they provided: priority check in, mess of priority boarding, baggage and complimentary seat selection. Everything onboard is for sale, nothing for free.
      So there is absolutely nothing fancy about LATAM domestic that is meaningfully better than it could be with JetSmart.
      If AA decides to collaborate with JetSmart the same way it did with LAN in terms of passenger experience it will be...

      LAN doesn't have a single domestic lounge in Chile. What they provided: priority check in, mess of priority boarding, baggage and complimentary seat selection. Everything onboard is for sale, nothing for free.
      So there is absolutely nothing fancy about LATAM domestic that is meaningfully better than it could be with JetSmart.
      If AA decides to collaborate with JetSmart the same way it did with LAN in terms of passenger experience it will be all the same: seat selection, baggage + throw in priority boarding for elites.

      I really don't get the disappointment. AA had 2 choices: do not provide connectivity (which is hardly convenient for customers right?) or provide it with low-cost SKY or low-cost JetSmart. They do right thing.

    1. BBK

      From JetSmart's side? yes, they're probably charging peanuts for that deal so it's surely a bargain, here in South America the economies and airlines are worse than you could imagine.

Featured Comments Load all 27 comments Most helpful comments ( as chosen by the OMAAT community ).

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stogieguy7

LATAM has been struggling financially, so this is a good way to try to put more pressure on them (and DL) for daring to run off together. Yes, LATAM has premium class seating/amenities, but most of these segments aren't all that long anyway. And LATAM's fleet is on the old side; not helped by offloading their A350's while still leaning on the same 767's that I flew on back when they were LAN Chile.

Max

Since last year LATAM has at least Premium Economy service in all its flights, including domestic ones. Premium Economy in LATAM is pretty similar to intraeuropean business class.

MaxPower

I get the overall point, but LATAM isn’t much more than an LCC product domestically either. I can’t imagine a one class LATAM flight vs a one class JetSMART is all that different except that LATAM has higher costs.

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