American Airlines and LATAM had been working on a joint venture, but after a Chilean Supreme Court ruling that country would have had to be carved out from the partnership in order to move forward.
When American Airlines was blindsided, losing its South American partner LATAM to Delta, the floodgates of criticism opened. There was open discussion of how management had alienated shareholders, employees and customers, and major investors in the airline starting reaching out to potential replacements for CEO Doug Parker. The CEO of Qatar Airways, which held a stake in LATAM, expected him to be fired.
For anti-trust reasons, Delta was forced to walk away from their Gol partnership to do the LATAM deal. So American hastily put together their own deal with Gol as a second-best alternative. It doesn’t help with most of South America, but does help in the domestic Brazil market. American Airlines invested $200 million for a 5.2% ownership stake in the carrier.
American considers Gol a ‘seamless’ partner. AAdvantage status members receive extra legroom seats, priority boarding, and free checked bags when flying the carrier.
The partnership allows American to sell more connections for its Brazil services, and also to sell more local flights to its Brazilian customers – and two-thirds of American’s customers on South America routes are based there and not the U.S.
Now, American could lose its Gol partnership too – or be forced to put in a lot more additional money. The Brazilian airline is in bankruptcy, and looking for new financing.
- They’re reportedly competing with United Airlines and Lufthansa to do so.
- They could be aided in their quest by British Airways.
- Air France KLM could make a play, but this is complicated by anti-trust implications from their own joint venture with Delta and Delta’s ownership stake in LATAM – and how countries other than Brazil would view such a tie-up (Delta also owns a small stake in Air France KLM). After all, Delta had to divest its stake in Gol already.
According to a report first published by local Brazilian news outlet Valor Economico, the investors that have been in talks to pump significant funds into GOL include major airlines such as United Airlines (UAL) and American Airlines (AAL) in the U.S. as well as European carriers Air France-KLM (AFRAF) and Lufthansa (DLAKF) .
British Airways parent company International Consolidated Airlines Group (BABWF) is also reportedly among the potential investors.
A week before the report of the talks with major U.S. and European carriers leaked, GOL and Azul executives confirmed that such a merger was among the possibilities and that a combined Brazilian airline would make “a national champion” to take on flagship LATAM.
United Airlines is relatively weak in South America, and this would be a boost to their Brazilian presence promoting greater competition. It would be a big low to American. As such, and because eroding their position in the region already nearly cost a past chief executive his job, American could find it forced to overpay for purely defensive reasons.
While Delta’s investments in foreign carriers like Virgin Atlantic, Aeromexico, Air France KLM and Korean Air have promoted their strategic interests exceptionally well, American’s adventures in foreign ownership haven’t played out well. For instance, in response to Delta buying a stake in China Eastern, American purchased a stake in China Southern – which they wrote down by 25% even before the pandemic and really haven’t done much with at all.
Regardless of this Gol situation (honestly, good riddance) and American’s loss of LATAM (when it switched to SkyTeam with Delta), American Airlines still has robust (if not literally the strongest and most frequent) operations to much of Latin America, specifically out of MIA. For instance, AA is the only US-carrier to destinations like Montevideo (and many unique destinations in the Caribbean, Central America, too).
While United already had partners like Azul, Avianca (which was/is also in bankruptcy), etc., those simply are not as significant as LATAM, which due to the merger of LAN and TAM, is the real juggernaut of South American-based airlines these days.
Don’t get me started on Aerolinas Argentinas. Good. Luck. With. That. *Milei starting up his chainsaw*
All that said, with the LATAM partnership, I think Delta has really made the greatest recent inroads to the continent. But, clearly, times do change, and countries that were once violent and chaotic (like Colombia) become the next tourist/expat hotspot for remote workers. While Peru, Ecuador had some rough spots recents. Personal favorite is still Chile—Torres del Paine, like wow. Simply the best.
Side note: How’s this all gonna work when you-know-who sends 20+ million people down there? Gonna get interesting, that’s for sure.
Please remind your audience of how many billions Delta lost by investing in Latam. AA wasn’t exactly outplayed.
It’s sad that so many people on airline blogs are apparently hoping that American Airlines gets liquidated.
Yeah, I agree that this is a rough situation for AA, but like others have said: the LATAM thing has sucked alot of capital away from Delta too,, not exactly a perfect investment for them either.
Interesting. Thanks for this timely strategy briefing. Very elevated relative to your typical work product.
Worth noting 2 things:
1) that GOL is part of Abra Group (as is Avianca), which both United and AA have a stake in. AA via its 200M investment in 5.3% of GOL, and United via its 16.4% of Avianca, courtesy of its 2021 bailout of that airlines ch11 process. That Avianca share being so much larger than AA’s GOL stake might mean that United already has significant sway over GOL.
2) United also owns some 5.35% of Azul, which is seen as a likely prospect to merge with Gol. Either way, United likely comes out of this better than AA.
@Chopsticks @BenG
You guys must be Delta shareholders.
Who are an airline’s actual customers anyways, the passengers or the shareholders?
If it’s the passengers, there is no doubt that Delta’s frequent flyers benefited from the LATAM partnership. I’ve taken LATAM’s 787s several times since the partnership began–it’s excellent.
If you’re upset that Delta didn’t maximize profits at the expense of its partner, its crews, or its passengers, then boo-hoo to you, ya vultures.
Abra Group [i.e., (A)vianca + (Bra)zil] is the holding company that owns airline subsidiaries, Avianca and Gol.
United codeshares with Avianca (albeit on a somewhat limited basis), and Gol codeshares with American. If United can invest in the holding company itself (that could then inject this as bankruptcy exit capital into Gol), United could be well-poised to pursue an immunized joint venture with both Gol and Avianca, and maybe even Azul, because a merger between Azul and Gol appears to be on the horizon!