Monday, August 23, 2010


In an article published in O Globo of Brazil, TAM Airlines (Brazil) and Lan (Chile) have announced their intention to merge and, thereby, to create the largest airline business alliance in the South American region, if not the entire Western Hemisphere. If everything goes as planned both airlines will be fused into LATAM, though they will keep their individual names and separate headquarters.

I have seen many articles on the Web speculating about which global alliance LATAM might choose to join—Star Alliance, of which TAM is already a member, or One World, of which Lan is a member. I tend to think that LATAM would gain greater competitive advantage by choosing to be part of Star Alliance because its U.S. member carriers (Continental, United, and U.S. Airways) currently have little presence in South America. Star Alliance could give LATAM a strong marketing image and, in turn, LATAM could give Star Alliance access to a virgin market. By contrast, the only U.S. carrier affiliated with One World is American Airlines, which already has a huge presence in Latin America but also has an increasingly bad image there—due not only to its low levels of customer service, but also to its complacency in a market that it takes for granted. Moreover, American is always looking for new ways to charge its customers more, the latest being an extra fee for “front row seats.” No wonder no other U.S. carrier wants to be associated with One World/American Airlines.

With that said, the Southern cone of South America could become a major international hub, making LATAM a world-renowned carrier on its own merits as well as a serious competitor of American Airlines in the region. I don’t know whether you are aware of it, but there are no direct flights from any country in South America to Japan, China, or other parts of Asia or to Africa. Currently, Qantas, an Australian airline (One World) flies directly from Australia to Chile and Argentina and serves as a connection to those regions above. But why shouldn’t Brazil, Argentina, Chile, or Peru—which has a new state-of-the-art airport—allow Air New Zealand, which is a Star Alliance member, to provide connecting flights as well? Or, even better, why not allow Air China, South African Airlines, or All Nippon Airlines to provide direct flights? After all, it’s all about politics and economic competitiveness. (Camarão que dorme a onda leva.)

There is also talk that Avianca, a Colombian carrier with an increasingly strong presence in the northern parts of South America and, through its partnership with TACA airlines, Central America, is in talks to become part of the Star Alliance. This would not damage or undermine the presence of LATAM; on the contrary, it would likely increase its profitability and its market capacity. The major airline hubs to countries in the South Pacific, Asia, Africa, Oceania, and even the Middle East are all now in the United States. But since Brazil and Chile are emerging markets with more economic trade to those regions, it is time to have a major airline hub in South America. The merger between TAM and LAN could make this possible.

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