Almost a year and a half after Chile’s LAN Airlines and Brazil’s TAM Airlines announced that they planned to merge, they have finally been approved by the aviation regulators in Brazil and Chile. Shareholders of LAN have also agreed to the merger.
LAN is a member of oneworld Alliance, as it has been for over a decade. It has strong ties with many oneworld airlines, especially American Airlines and Iberia. Many of its traffic flows are optimized for oneworld connections. There is no doubt that oneworld is an important part of LAN’s strategy. Luckily for LAN, oneworld’s strategy for South America depends on LAN. Without LAN, oneworld would be pitifully weak in South America. This means that oneworld will likely sweeten the deal quite a bit to try to retain LATAM (the planned name after merger).
In contrast, TAM is a recently joined member of Star Alliance. It joined mere months before the merger was announced. It would not surprise me if joining Star Alliance was just a way to attract LAN for the merger. Its ties with Star Alliance members have not had the time to mature, so it is not as dependent on alliance traffic as LAN is. While TAM doesn’t really need Star Alliance that badly, Star Alliance still wants LATAM. The combined airline is focused to have over 60% of market share in South America, and every alliance wants that kind of coverage. That said, losing LATAM wouldn’t be as devastating for Star Alliance as it would be for oneworld. Avianca Airlines, TACA Airlines, and Copa Airlines all are in the process of joining Star Alliance, and all of them have reasonable connectivity in South America. In addition, Star Alliance has TAP Portugal as a member. TAP serves numerous destinations is Brazil, keeping some semblance of connectivity for Europeans and Asians to Brazil.
A major factor in the alliance decision is the restrictions that regulators put on the combined airline. Chile’s anti-trust regulator, the TLDC, approved the merger in September 2011. It placed 11 conditions on the merger. The majority, such as divesture of slots and restrictions on service to Santiago, have no bearing at all on the alliance decision. The TLDC declared that LATAM must be in a single alliance – it cannot be split between oneworld and Star Alliance. In addition, it declared that LATAM cannot join an alliance that Avianca-TACA is a member, or in the process of joining. The decision also decided that LATAM cannot have any codeshares with airlines outside the alliance, but that condition is being appealed.
There is no doubt that this decision heavily favors oneworld over Star Alliance. For one, the decision mandates that LATAM cannot join Star Alliance as long as Avianca-TACA plan to join the alliance. It would be ludicrous for Star Alliance to rescind their invitation from Avianca-TACA just so that they might be chosen by LATAM. And that might is extremely unlikely, considering LAN’s close ties with oneworld airlines.
Brazil’s anti-trust regulator, the CADE, imposed a completely different set of conditions. The only one which affects alliances is that it mandated that LATAM join an alliance which is is already part of. This means that SkyTeam has no chance to pick up LATAM.
TAM’s switch from Star Alliance to oneworld would change alliance dynamics in South America drastically. oneworld will control the majority of long-haul traffic to and from South America. Star Alliance will only have Avianca-TACA and Copa to cover South America, while SkyTeam will be in worse shape with only horribly managed Aerolineas Argentinas to cover South America. oneworld is in an excellent position to take over South American market share. Of course, it is important to never say never when it comes to the aviation industry. There is always a chance that LATAM will join Star Alliance or the merger will fall through. But it seems pretty certain that oneworld will be the final destination for LATAM in the end.