Live

Watch CBSN Live

LAN-TAM Merger: U.S. Carriers Sweat The Fate of Alliance Partners

Last week, a monumental merger was announced between Latin America's two largest players. Brazil's TAM will come together with LAN to form a Latin giant without rival, but here in the U.S., there's one question at the top of every airline exec's mind: which alliance the combined airline will choose.

This merger is following a European template as opposed to opposed to what one might traditionally consider a merger. LAN and TAM will both remain separate brands and will continue to have their own headquarters. There will just be an umbrella holding company that brings many of the behind-the-scenes functions together. This will allow for greater cooperation in terms of schedules, marketing, fleet buying, etc. And of course, it will create single back-office operations across airlines. It should be a powerhouse merger that will dominate the continent.

So why are they setting it up this way? It's the same reason they do it in Europe -- politics. Brazil has certain requirements on foreign ownership, and so it has to be structured in such a way that those aren't violated. But here in the U.S., none of that matters. The only real question, as mentioned above, is what will happen in the alliance situation.

LAN has been a key member of oneworld since 2007. It has greatly benefited from its connection with American and its strong presence between North and South America. It also has been quite clear in talking about the importance of Japan Air Lines (JALSQ) for serving the heavily-trafficked routes between Asia and Latin America. The airline has been very happy with oneworld, and holds an important position.

TAM, on the other hand, has only very recently gone with Star Alliance. Though Star Alliance is incredibly strong, its position in Latin America is weak. The addition of Continental (CAL) and its strong traffic from Houston and TAM has made it much more competitive in that region.

So, which alliance will the new combined airline choose? That question becomes even more urgent for the alliances when realizing that there aren't any other real options there. The only potentially large competitor in Latin America is the Avianca/TACA combination. But the strength of that group lies in Central and northern South America. For Brazil, Argentina, and Chile, there aren't any other strong options at the moment.

Sure, there's Gol in Brazil, but that's a low cost carrier. It can fill a need, but it can't provide the same level of business traveler-friendly service and schedules that TAM and LAN can. And don't even get me started on Aerolineas Argentinas, which is still in the running for worst airline ever. It's just a mess.

So the alliances now have to begin the wooing process all over again. But here's a crazy thought. Since both airlines are operating separately, could they decide to both remain in separate alliances? It may sound crazy, but I'd argue that it's not. It would actually be brilliant.

LAN and TAM will obviously share traffic with each other, but wouldn't it be incredible if they could bring traffic into the network via two different alliances? I assume all flights will have LAN and TAM flight numbers. So TAM could continue to sell its flights along with LAN flights under the TAM name with Star Alliance carriers. Then LAN could do the same with oneworld. Double the traffic, double the fun.

I'm not even sure how that would work from a logistics point of view, but if they could pull it off, they could solidify an important place in two alliances. This could be a tremendous catalyst for growth. The biggest concern? We'll see what regulators think. That might be a bit too anti-competitive for their tastes.

So U.S. airline execs will continue to have to wait it out to see what will happen. If the airlines choose one alliance over another, it could be a painful blow for the losing alliance because there just aren't any other good options to fill the space.

Related:

Image via LATAM Airline Group
View CBS News In
CBS News App Open
Chrome browser logo Chrome Safari browser logo Safari Continue