The proposed merger of South America’s two largest carriers, LAN and TAM, precipitated many questions. Perhaps the most significant from frequent fliers was the future of the loyalty program. LAN is a member of the oneworld alliance while TAM recently joined Star Alliance. A merged program will have to pick one of those with the decision having great significance in the South American travel market.
Thanks to the Chilean government it appears that the decision has been made and that the carrier will be remaining in oneworld.
The Chilean Tribunal de Defensa de la Libre Competencia (Court of Defense of Free Trade) handed down their approval for the two carriers to merge this week with a laundry list of conditions attached. Here are details on a few of the most significant conditions:
Numbers 1 & 4 require that LATAM give up 4 landing slots in Sao Paulo to allow another carrier to establish service on the Sao Paulo – Santiago route in order to maintain a competitive fare environment on that route. Additionally, LATAM is prohibited from dumping inventory onto that route within 15 minutes of the newly scheduled service once the new entrant has declared their interest in operating the service. Rule 13 also prohibits the new carrier from raising fares on the route versus their aggregate historical averages for one year.
Number 9 requires that LATAM not oppose any foreign carrier’s application to operate with additional freedoms on domestic Chilean routes or to provide service that would otherwise be seen as cabotage. This would effectively allow tag-on flights for long-haul carriers or regional flights within Chile for other airlines in South America. LATAM is required to endorse such requests without demanding reciprocity.
And then there is number 6:
Latam deberá renunciar, dentro de un plazo que no exceda 24 meses contados desde la fecha en que se materialice la Operación consultada, al menos a una de las dos alianzas globales en que a esa fecha participan sus partes, LAN y TAM. En ningún caso podrá pertenecer a aquélla en la que también el grupo Avianca/Taca sea miembro o asociado, o se encuentre en proceso de ingresar.
Within 24 months of realizing the merger the airline is required to resign from at least one of the two global alliances in which is currently participates. Moreover, the carrier must not be in the same alliance as Avianca/Taca, the other powerhouse merging carrier in South America. With Avianca/Taca moving rather quickly down the path of joining Star Alliance this clause leaves oneworld the only rational result.
The other options are to go independent, a tough move to make in that region, or to try for SkyTeam. But with Aerolineas Argentinas set to join SkyTeam it doesn’t seem likely that the competition courts would be too happy to see such a move. They could also try to thwart the entrance of TACA/Avianca from Star Alliance if they want to stay with the group. That would be a most interesting political move and a most unlikely one as well.
The court ruling lays out a pretty clear framework for the carriers to work within and a reasonable timeline through which the changes must be made. Unless the Brazilian government comes up with a major surprise on their conditions for the merger it looks like this one is ready to happen in early 2012 with all the details finally falling into place.
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Interesting information. Personally I am pleased it looks more likely they will remain in OW.
When Avianca and Taca announced they would be joining Star Alliance, the writing was pretty much on the wall. Now the key issue for me here is, will AS continue their partnership with the combined carrier? 😉
That is something I hope to find out in the coming months.
To what extent can Star Alliance dictate whether it is LATAM or TACA/Avianca which joins/remains? Brazil seems like the biggest market in which you’d want the strongest member. Given this ruling, if LATAM wants to remain in Star, wouldn’t it be easy to Star to change course on TACA/Avianca?
Carl:
I expect that if Star wanted the new Latam bad enough they’d kill whatever contract they have with AV/TA and make it happen. After all, it is just money, right? I doubt they’ll do it, but I’m sure it is possible.
If *A were to drop the possibility AV/TA to get LATAM and then in a few years admitted AV/TA, would LATAM be required to leave *A?
They did drop AI, which looks like it is costing LH A380 landing rights.
Kicking AI out (or really not letting them in) was a bit different. Among other things, I don’t know that the Indian government explicitly stated that they’d be causing such a fuss should Star go that route.
As for making the change now and then trying to add the other carrier in later, I’m guessing the anti-trust folks down there wouldn’t have too much trouble seeing through that ruse.