The recent ratification of an open skies agreement by Brazil"™s Senate results in the US airlines arguably gaining unfettered route access to Latin America"™s largest markets "“ Brazil, Mexico and Colombia.
Now that the agreement is nearing formal ratification, LATAM Airlines Group and American Airlines can move forward in establishing their immunised joint venture, which in many ways represents a virtual merger. Rivals of those oneworld partners have had ample time to craft a response to the proposed JV, but the ratification of open skies creates a certain level of pressure for LATAM"™s and American"™s rivals to ensure they"™ll have the necessary tools to compete effectively against an entity that could control approximately 54% of the seats between the two countries.
The establishment of open skies with the US could reignite discussion in Brazil about changing foreign ownership laws covering the country"™s airlines, but 100% full foreign ownership is unlikely to materialise.
Still, a more liberalised perspective in Latin America"™s largest air travel market could spread to some of the region"™s more protectionist countries. Chile, which allows 100% foreign ownership of airlines, is not experiencing any detrimental effects from the debut of the ULCC JetSMART in its domestic market during mid-2017.
Brazil"™s airlines have expanded to the US, prior to open skies approval from Brazil"™s Senate.
LATAM Airlines Group and American"™s JV will spur competitive responses from rivals in the region.
Brazil has an opportunity to lead the adoption of a more liberalised mindset on airline ownership in South America.
Brazil’s airlines expand to the US "“ even before approval of an open skies pact
In early Mar-2018 Brazil’s Senate approved an open skies agreement with the US that dates back to 2010. Over the years there has been pushback by some Brazilian legislators, who have argued that Brazilian airlines would face challenges in competing with US operators.
Despite that concern, Brazil"™s airlines have been expanding to the US. During 2017 the country"™s fourth largest airline Avianca Brazil introduced flights from São Paulo Guarulhos to Miami and New York JFK, also Azul launched service from Belém to Fort Lauderdale and resumed flights from Belo Horizonte to Orlando International. Those flights joined Azul"™s service from Campinas to Orlando and Fort Lauderdale, and from Recife to Orlando.
As it waits for final ratification of open skies and the requisite regulatory approval of its JV with American in the US, in 2018 LATAM Airlines Brazil is adding seasonal flights from São Paulo to Las Vegas, and new service to Boston.
In early 2016 LATAM tabled plans to establish joint ventures with its oneworld partners IAG and American. The proposed pact with American covered six countries "“ Brazil, Colombia, Chile, Paraguay, Uruguay and Peru.
Brazil has given a nod to the tie-up, which can only be executed once open skies is ratified with the US. Colombia has also approved the JV, but Chile has previously expressed some competition concerns. However, LATAM executives recently stated that the company was expecting Chilean authorities to approve the joint ventures with IAG and American in 2018…
