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LATAM will remain unaligned after Delta tie-up, Oneworld exit

Sept. 27, 2019
5 min read
LATAM will remain unaligned after Delta tie-up, Oneworld exit
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LATAM Airlines plans to go it alone once it exits the Oneworld alliance as part of a landmark strategic pact with Delta Air Lines.

The South American airline group will become an unaligned carrier after leaving Oneworld, though it plans to maintain all of its bilateral agreements except the one with American Airlines, said LATAM commercial chief Roberto Alvo during an analyst call on Friday. Alvo is due to take over as CEO of LATAM in April 2020.

However, even as the LATAM-Delta pact promises to reshape the aviation landscape in the Americas, travelers can expect LATAM to continue its partnerships with the likes of British Airways, Qantas Airways and Qatar Airways — at least for the time being.

Related: Delta to take 20% stake in LATAM, which will leave Oneworld Alliance

LATAM's relationship with American will be unwound over the next several months, Alvo said. LAN Chile and American first partnered in 1999, a relationship that continued after LAN Chile merged with Brazil's TAM to become LATAM. LATAM and American also will walk away from their efforts for a joint venture that the carriers have sought since 2016.

Delta will invest $350 million in LATAM to help defray the costs of leaving Oneworld and its American relationship. This is separate from the roughly $1.9 billion the Atlanta-based carrier plans to spend buying a 20% stake in LATAM.

LATAM declined to give specific guidance on its timetable for exiting Oneworld, saying only that it would likely come after it severs its ties to American.

Now, LATAM and Delta hope to establish a codeshare agreement by the year's end, the first step toward a possible full joint-venture that is expected to take up to two years. Such a partnership, if blessed by regulators, would allow the airlines to act as essentially one between the U.S. and certain South American countries.

As a result of the new partnership, Delta will sell its stake in Brazil's Gol and end its multi-year relationship with the carrier.

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"We had no choice when the LATAM opportunity presented itself," Bastian said. "Gol really only covers domestic Brazil," while LATAM's network covers nearly all of South America.

Alliances shake up

LATAM's embrace of Delta not only comes at the expense of American, but could be the first in a wave of changes that could disrupt deep-seated airline alliances. Increasingly, more carriers seem open to the "unaligned" stance LATAM intends to take after exiting Oneworld.

"The alliances will eventually lose their importance as airlines continue to grow and adjust their route networks," Cowen analyst Helane Becker said about LATAM's departure from Oneworld in a Friday research note. "This is not the first time an airline moved from one alliance to another, and we don’t expect it to be the last."

Oneworld will lose its only South American member with LATAM's departure. However, as Alvo indicated, travelers can expect business as usual with member carriers except American.

The fact that LATAM does not plan to join the SkyTeam alliance, which Delta helped found in 2000, is notable. While not commented on directly by executives at either carrier, it is just the latest signal of a larger move away from the alliance system that has defined airline partnerships since the 1990s.

Delta CEO Ed Bastian, speaking during the airline's own investor call on Friday, said alliances have not lived up to all of their "promises" in terms of easing touch points between carriers. He cited technology as an example, pointing to disconnects between various reservations systems.

"We are not going to sit around and wait for the alliances to develop the technology... We’re building on a bilateral basis," said Bastian.

Delta is already making such bilateral investments. Unaligned Virgin Atlantic, after forging a strategic partnership with the U.S. carrier in 2014, adopted a reservations system based on the one used by Delta to ensure "seamless experiences" for customers. Additionally, Virgin Atlantic also has forged ties with Air France and KLM, two of Delta's close SkyTeam partners.

Related: Delta, Air France, KLM, Virgin Atlantic Transatlantic Pact Gets Tentative Nod

It is too early to know whether the Delta-LATAM pact will include technological cooperation. What is clear is that the airlines will be working more closely together, especially if the proposed joint venture is approved.

In the meantime, Delta and LATAM are not losing any time implementing their new partnership. A Delta team is headed to LATAM's headquarters in Santiago, Chile, to begin fleshing out the details during the week of Sept. 30, Delta president Glen Hauenstein said on the call.

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Featured image by LATAM made waves this year by announcing it would leave the Oneworld alliance to partner with Delta. Photo by Rafael Luiz Canossa/Wikimedia Commons.

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