TACA-Avianca airline merger may hurt Chile's LAN
Alliance creates region's third biggest carrier
Santiago () The merger of Colombia's Avianca and Salvadoran-based TACA is the latest sign that consolidation in the Latin American airline sector is picking up — and that is bad news for Chile's LAN Airlines.
The newly formed Holdco — which will be controlled jointly by Avianca and TACA — instantly becomes one of the region's largest airlines after Brazil's TAM and GOL, with 129 planes and flights to more than 100 destinations.
But beyond its sheer size, the partnership is bound to alter the regional business map for LAN. Chile's largest airline will now have to move faster to close other regional agreements at the same time it faces increased competition in markets it was hoping to expand, such as Brazil and Colombia.
"With this announcement there emerges a tough new competitor in a region dominated by LAN and Brazilian firms," said an analyst from a Chilean investment bank who requested to remain anonymous.
LAN's original idea was to attack aggressively the Colombian market, where it recently launched a cargo operation, the analyst said. But now, it may have to keep its strong presence mainly in Peru, Ecuador, Chile and Argentina.
Anticipating a changing landscape, LAN's executive vice-president, Enrique Cueto, told reporters recently that a regional fusion, such as the one by TACA and Avianca, was in store for the region.
"There has to be a value that allows for an exchange of future stocks or some type of consolidation ... which is what I think is coming in the industry," Cueto said.
Survival alliances
Hours after the merger announcement on Wednesday, Grupo AeroMexico, the holding company of AeroMexico and AeroMexico Connect, also said it would review partnerships with local and global players to help it face the global economic crisis.
Forming alliances may be crucial for the survival of some regional carriers such as the ones in Latin America at a time when the worldwide recession punished the airline sector, with companies and families sharply cutting back on air travel.
