Latin America’s largest airline, LATAM, announced on September 26 that it will be leaving the Oneworld alliance. Delta Air Lines on the same day announced that it would purchase a 20% stake in the Chilean carrier. The two carriers will enter into a strategic partnership. They will also hold the leading position in five of the top six Latin American markets from the United States. Delta will also acquire 14 A350 aircraft from LATAM.
Why Delta Purchased a Stake in LATAM
This partnership is hugely beneficial to Delta. According to a February report by CAPA and OAG, Delta only had seat shares of 9%, 8%, and 13% between the US and upper South America, lower South America, and Central America respectively. As a comparison, American Airlines had 25%, 39%, and 18% shares in the same markets. With LATAM leaving Oneworld, the airline will also stop partnering with American Airlines, with whom they recently had a joint venture refused by the Chilean Supreme Court.
Once this new partnership is up and running, Delta states that together with LATAM it will hold the leading position in five of the top six Latin American markets from the US. The airlines will together serve 435 destinations worldwide, and carry more passengers between North America and Latin America than any other partnership.
Impact on Oneworld
LATAM leaving Oneworld means the alliance will have no airline based in Latin America. Both American Airlines and Iberia have significant operations in Latin America. LATAM’s decision will affect both airlines negatively. However, American Airlines said yesterday in a statement that it will not have a ‘significant financial impact’. The statement said:
“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 to American, and the proposed joint business without Chile would have provided limited upside.”
What Delta Thinks
Ed Bastian, Delta’s Chief Executive Officer, said:
“This transformative partnership with LATAM will bring together our leading global brands, enabling us to provide the very best service and reliability for travelers to, from and throughout the Americas. Our people, customers, owners and communities will all benefit from this exciting platform for future growth.”
What LATAM Thinks
Enrique Cueto Plaza, Chief Executive Officer of LATAM, added:
“This alliance with Delta strengthens our company and enhances our leadership in Latin America by providing the best connectivity through our highly complementary route networks. We look forward to working alongside one of the world’s best airlines to enhance the travel experience for our passengers.”
Additional Details of the Partnership
- Delta’s 20% stake will cost $1.9 billion, purchased through a public tender offer at $16 per share, principally funded with newly issued debt and available cash.
- To support the establishment of the strategic partnership, Delta will invest a further $350 million.
- Four Airbus A350s will be acquired by Delta from LATAM. Also, LATAM’s commitment to 10 additional A350 aircraft has been taken over by Delta. These aircraft will be delivered between 2020 and 2025. This will support Delta’s ongoing fleet transformation.
- To further strengthen the relationship, Delta will be represented on LATAM’s Board of Directors.
- The tender offer and the strategic partnership are subject to customary closing conditions and all required governmental and regulatory approvals, including anti-trust immunity.
- LATAM will be leaving Oneworld
Featured Image Source: Oliver Holzbauer on Flickr