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A Guest Post by John @laptoptravel
Back in April of 2015 I wrote “I am absolutely certain that one of the biggest fare war battles is starting to brew in Latin American and Caribbean routes. Richard Anderson (CEO of Delta at that time) has made it very clear that he intends for Delta to become the preeminent carrier in those regions. The recent partnership alliance with AeroMexico is just a hint of what’s to come…”
Fast forward to today and we can see that Delta has increased its ownership in Aeromexico and is raising its stake in GOL (a Brazilian partner) in its pursuit of increased presence in the Latin and South American markets.
The U.S. airline industry has gone through a lot of consolidation leaving us with what will be four major airlines; American, Delta, United and soon to be Alaska (post Virgin America merger.) While large successful airlines are rich with recent profits, it makes sense for them to shop around for deals which effectively increase their market share overnight by simply ‘buying’ that presence in the form of joint-partner agreements and mergers.
Such examples are Delta’s investment in China Eastern, Virgin Atlantic, Aeromexico and GOL. Etihad owns a large portion of Alitalia. There are many other such examples. Those investments keep the original airline’s name, livery and operations intact; although they often join into one of the three large airline alliances; Oneworld, SkyTeam or Star Alliance. By doing so, it opens up more opportunities for members of that alliance with increased connections and reward travel with that carrier.
According to The Wall Street Journal Delta Air Lines and United Airlines are considering bidding for ownership of Avianca; which is one of Latin America’s largest airlines:
United Continental Holdings Inc. and Delta Air Lines Inc. are among suitors considering bids for Avianca Holdings SA, according to people familiar with the matter, as airlines around the world seek combinations to help them withstand fierce competition and bulk up internationally.
Advisers to Avianca have distributed a document to potential bidders seeking a $500 million capital injection, one of the people said, adding that could develop into a full sale. The process is in early stages, the people said, and there may be no deal at all.
Avianca one of the largest airline companies in Latin America, is based in Panama and owns carriers including its Colombian namesake and Tampa Cargo SA in that country, and AeroGal in Ecuador. In 2010, Avianca merged with Grupo Taca, which had airlines in El Salvador, Costa Rica, Peru, Nicaragua and Honduras. Avianca went public in 2011 and has a market value equal to roughly $600 million.
Now, if anything were to come of this, and say Delta ends up with owning Avianca, I would not expect them to re-brand the airline into Delta. There are many advantages for Delta (or United) to keep the livery, look and feel of Avianca; especially since the airline is so widely recognized in the Latin American market.
Ever since Delta’s (ex) CEO Richard Anderson set his sights on the Latin and South American markets about four years ago they have been searching for ways to compete there successfully against American Airlines who is by far the most dominant of the Big 3 U.S. carriers in that arena. Purchasing Avianca would give Delta that immediate boost to challenge American. Given that American already has a joint-venture partnership with LATAM a deal to takeover Avianca could be huge.
Having Avianca would open up a new door and immediate benefits to Delta for connecting routes once they ‘fed’ these with their own mainline jets into the region. This would be similar to Delta’s expansion plans with their partnership with China Eastern,
Avianca is a Star Alliance partner, so that would make a takeover more attractive for United Airlines, however perhaps even a bigger coup d’état if Delta could snatch away a Star Alliance member and convert them to the SkyTeam world. It also would give Delta more access to Cuba, as we know that market will open up for U.S. carrier approval and competition soon.
Avianca operates a fleet made up of about 90 percent Airbus aircraft, although they do have 8 Boeing 787’s in their fleet.
Recently, I have flown several flights into Latin and South America and in many cities Delta had but a single flight in and out from those airports back to my originating airport. In fact, in Lima, Peru, Delta’s ticket counter was shared between three airlines and no one even manned it for Delta until starting at 10pm at night! I would love to see Delta offer more connections and increased scheduling in these markets.
We would love to hear what you think of this possibility – We’ll see you ‘Up There’ soon! – John @laptoptravel
What would you think of a Delta acquisition of Avianca?
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Come on now 4 major airlines in the USA…. Southwest is way bigger than Alaska.
Anyway from an alliance standpoint I would think Avianca would fit better in Skyteam simply because they wouldn’t have to compete with Copa for Star connections. On the otherhand Gol is not in Skyteam but is a Dl partner, there would be some overlap with Avianca Brazil
“Richard Anderson (CEO of Delta at that time) has made it very clear that he intends for Delta to become the preeminent carrier in those regions.” MSP-GRU-MSP with Delta $1450. Same route with AA $550. Good luck Delta!!!!!! BTW Delta is so greedy that it is the ONLY international airline that operates in GRU that did not move to their newest international terminal 3. They kept their flights leaving from the old terminal 2 probably to save money. Is that how they intend to own the region?
@Ben-
As far as the size of Alaska, I stated “what WILL BE be four major airlines; American, Delta, United and soon to be Alaska (POST Virgin America merger.)” So that is POST-Merger; at which time Alaska will be the new #4
I would hope that IF Avianca joined SkyTeam that Delta would then work to bring GOL to the program as well.
@Santastico – Delta is shrewd (cheap, frugal, miserly) no doubt. I am frustrated for our readers, my clients and the Delta passengers in general who would like to see more favorable fares that rival American’s. American also has more flat-beds serving routes south of the border and that’s another leg they have up on Delta in this region. I believe that Delta is aware of all the issues facing it in these markets, but at the same time is determined to expand which will require more flights, better products and competitive fares.
Buying another airline could give them all of those things overnight.
It may have been Anderson’s original dream but I am beginning to think Bastian is going to make some great things happen at Delta, just my tenuous opinion [I have been jaded over the past couple of years, thus I am not convinced of anything…yet.]
I wonder why UA doesn’t buy into Copa again? They had a history with Continental (heck the logos and colors look similar and branding was exactly the same) and they just recently split their FF program into their own although they still can use GPUs and RPUs in each other’s program.
One basic thing – generally airlines can’t buy foreign airlines, local laws usually limit foreign ownership. For example Delta can only acquire up to 49% of Aeromexico.