- Through a series of mergers, two super airlines have emerged in South America.
- Avianca is a major player in the northern part of the continent.
- Latam is dominant in the south.
- Both are vying for supremacy in Brazil.
Over the past couple of decades, consolidation and bankruptcies have reshaped the airline industry in North America.
Historic brands such as TWA, Continental, Northwest, and US Air have gone away, with new ones like JetBlue and Virgin America coming on strong.
The same can be said for the airline industry in South America.
Old names like Varig, LAN, and TAM have disappeared as newcomers like Azul and Gol in Brazil have become major players in the market. But the biggest story is the rise of pan-South American super airlines that have formed in recent years.
So far, the two major players are Avianca and Latam.
"Latin America, as a collection of many, many countries, traditionally had at least one, if not multiple, airlines per country, which is very inefficient," Avianca CEO Hernan Rincon told Business Insider. "Now, as globalization takes hold of the Latin American airline industry, it is in a state of consolidation and definition."
In 2009, Colombia's Avianca merged with the El Salvador-based TACA Airlines. The two carriers and their sub-brands now operate using the Avianca banner and under the ownership of Avianca Holdings, which itself is a subsidiary of Brazil's Synergy Group. In 2010, Synergy Group renamed OceanAir, its Brazil-based airline operation, Avianca Brazil and brought its product offerings in line with that of the other Avianca carriers.
Latam is a result of a 2012 merger between Chile's LAN Airlines and Brazil's TAM. The merged company is the largest airline in Latin America, with 46,000 employees operating subsidiaries in Argentina, Brazil, Chile, Colombia, Ecuador, and Peru.
"We envision the future where we will have two, maximum three, truly Latin American-wide airlines," Rincon added, "and our plan is to become one of them."
South America's airline market
When discussing South America's airline market, it's "best to split the continent into two separate markets," Vinay Bhaskara, the senior business analyst at the magazine Airways, told Business Insider.
As Bhaskara puts it, the divide is based on geography, with countries such as Colombia, Venezuela, Ecuador, Guyana, and Peru making up the north and Argentina, Brazil, Bolivia, Chile, Paraguay, and Uruguay located in what Bhaskara calls "deep South America."
Avianca's modern 173-aircraft fleet operating 6,000 flights a week is the dominant force in the northern part of South America. The airline's major hubs in Bogota, Colombia, and Lima, Peru, and TACA's former home base in El Salvador serve as the prime jumping-off points for service to secondary and tertiary markets.
The northern countries of South America are a much more competitive market than the southern ones. That's because major destinations such as Bogota or the Venezuelan capital of Caracas are within reach of narrow-body airliners such as the Boeing 737 and the Airbus A320 family from as far away as the east coast of the US. As a result, competition in the region comes not only from within the continent but also from major airlines in the US and Central America such as Panama's Copa.
Deep South America is much more remote. As a result, competition in the market is generally among local carriers — with the major exception being Brazil.
Deep South America is generally Latam country. Apart from Brazil, Latam's dominance there is unquestioned. Latam's modern fleet is made up of more than 300 state-of-the-art Boeing and Airbus jets.
For Latam, the most pressing threat is the rise of low-cost carriers in the region. In response, Pablo Chiozza, Latam's senior vice president, told Business Insider, the airline has shifted its domestic strategy from a full-service model to one that mirrors that of its low-cost competition by unbundling its fares.
Depending on the market, Latam has been able to lower its domestic ticket prices by 20% to 40%. According to Chiozza, Latam's goal isn't merely to increase its market share; it wants to tap into new customer bases to grow the market.
"A decade ago, with an 80% share of the market in Chile, we dropped prices by 40%," Chiozza said. The resulting influx of new passengers actually resulted in an increase in revenue for the airline.
And then there's Brazil. Brazil isn't just South America's largest market; it's also the most competitive. There isn't a single dominant force there. Instead, four well-funded and highly capable carriers are vying for supremacy. Avianca is represented by its sister company, Avianca Brazil, while Latam is represented by Latam Brazil, the premerger TAM Airlines. The Sao Paulo-based Gol and its fleet of 120 Boeing 737s have become a force to reckoned with in recent years.
And then there's Azul. The nine-year-old carrier has garnered more than half a billion dollars' worth of investment from United Airlines and the Chinese travel and leisure giant HNA Group. Azul is the fourth airline founded by its CEO, David Neeleman, who is also the man behind Morris Air, WestJet, and JetBlue.
According to data from the Brazilian Civil Aviation Authority, Gol finished 2016 with the highest domestic market share, 36%. Latam Brazil, the top dog the nine previous years, finished second with 34.7% of the market followed by Azul's 17.1% and Avianca Brazil's 11.5%.
If a third super airline emerges, it will most likely come from Brazil. Both Gol and Azul have proved to be ambitious in their growth within South America, while Azul's new service to the US and Europe shows that it has ambitions beyond the continent.
Regardless of whether a third super airline emerges in the South American market, what seems clear is that Avianca and Latam are there to stay.
"We believe Latam and Avianca are years ahead of everybody else," Rincon, the Avianca CEO, said.
Latam's Chiozza agrees.
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