IAG, American Airlines agree joint venture deals with LATAM Airlines to boost Europe and SouthAmerica

Chile-headquartered LATAM Airlines has signed joint business agreements to deepen its ties with American Airlines Group and IAG’s British Airways and Iberia, all members of the Oneworld Alliance.

If cleared by competition authorities, the new agreements would help the airlines coordinate schedules and prices for flights, similar to the North Atlantic revenue-sharing agreement which already exists between IAG and American Airlines.

Joint business deals are one way for airlines to combine to help them extend the reach of their networks in an industry where foreign ownership rules often prevent outright mergers.

Within Europe, mergers have proved possible, like the one between British Airways and Iberia which formed IAG, but the big transcontinental deals which have taken place in the pharmaceuticals, automotive and oil and gas industries, have not happened among airlines.

Both deals are subject to regulatory approval in different countries. American and LATAM plan to apply for immunity from antitrust law, while IAG indicated that it could take between 12 and 18 months for its agreement to be given the green light.

IAG Chief Executive Willie Walsh expressed his interest in LATAM in November, when he told investors that deepening the partnership with a southern hemisphere carrier could act as a natural hedge to IAG’s seasonal earnings which are heavily weighted to the northern hemisphere’s summer.

Davy analyst Stephen Furlong said the new agreement would give LATAM and IAG about a third of the capacity on Europe to South America routes and would likely result in cost and revenue synergies.

“IAG have a track record in delivering substantial synergies,” he said, noting the success of the group’s joint venture with American Airlines which dates back to 2010.

The agreements with LATAM, which operates LAN Airlines in Chile and TAM in Brazil, would improve connectivity between South America and the United States and Canada, in the case of American, and increase flight options between Europe and Latin America, in the case of IAG.

Doug Parker, chairman and chief executive of American, said customers would benefit from more frequent and convenient schedule options than the carriers could offer individually.

“Travelers headed to Latin America will soon have more seamless access to more than 100 additional destinations with LATAM beyond American’s already extensive network,” he said.

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