The last few years of consolidation and strong profits meant Delta has begun to look outside of North America to expand its business. In what may be a disruptive move to the airline industry, Delta is purchasing up to 20% stake in LATAM, which was formed out of the merger of LAN and TAM. According to the Reuters news article, Delta Airlines will utilize newly issued debt and cash-on-hand to pay $1.9 billion for the stake.
As part of this agreement, Delta will also sell its stake in Brazil’s largest airline Gol, which overlaps with some of LATAM’s routes. In addition to the share purchase, Delta will also commit $350 million to help LATAM transition out of oneworld alliance and instead connect to Delta’s network. Delta would also acquire 4 Airbus A350s from LATAM and take-over purchase commitments for the additional 10 Airbus A350s due to be delivered between 2020 and 2025.
Delta has been making moves in recent years to strengthen its flight network in order to compete with the Middle Eastern airlines. For their Trans-Atlantic operations, they have a strong JV with Air France/KLM and is also exploring taking a stake in Alitalia. On the Trans-Pacific front, they have a stake in China Eastern and a JV with Korean Air. The stake in LATAM would complete the trifecta since on all directions Delta seems to be having their own partners. This gives rise to the question if they might one day ditch Sky Team, though I certainly hope not since airline alliances still provides some benefit to flyers and some of the new Sky Team lounges are pretty nice.
Having flown with LAN before in Chile, my thoughts were they were a good airline to fly with with clean cabins and efficient service. Prices for domestic flights were also reasonable and it was with coincidence that on that trip to South America, I flew Delta to get into the continent. Amongst North America’s largest carriers, Delta has the weakest coverage in South America, with American Airlines having the largest footprint. Thus this deal would certainly result in a loss for oneworld travellers since they are now left with no airline based in South America.
Being the largest airline in South America, LATAM operates hubs at the major cities in Lima in Peru, Santiago in Chile and Sao Paulo in Brazil, with the last 2 cities being their main hubs. Out of this share purchase, I foresee an increase in flights between Delta’s hubs in Atlanta, Los Angeles, and New York to either Santiago or Sao Paulo. While Delta has hubs in Detroit and Seattle, I find they might be too far up north that it does not make much sense since it makes the flights to South America longer and less efficient. I would also expect the Delta Sky Club in Santiago to be closed so that Delta passengers could use the LATAM lounges instead.
Considering I find Delta to be a better managed and operated airline than American Airlines, the combination of Delta with LATAM is good news. This is because most travellers based in Asia (me included) would need to transit via North America to get to South America. Having flown several transpacific routings with Delta, I can honestly recommend flying with them on long haul routes as they give Asian carriers a run for their money. This opens more possibilities and routings to South America from Asia and if having tickets on one itinerary will minimize inconveniences when it comes to delays and mis-connections. Overall this also means that Sky Team flyers should benefit since with things looking as it is, Sky Team seems to be en-route to become the best alliance covering South America with AeroMexico and Aerolineas Argentinas, both main carriers in Mexico and Argentina being full members of Sky Team as well.