The Joint Venture Agreement (JV) between Delta Air Lines and LATAM Airlines Group received provisional approval and antitrust immunity from the Department of Transportation (DOT) on Thursday. The US Tentatively Approves Delta-LATAM JV.
Delta-LATAM JVA approved – kinda.
The DOT believes the Delta-LATAM JV will likely generate public benefits while the US-South America market would remain sufficiently open to existing and new competition. Nonetheless, it has placed certain conditions on final antitrust immunity.
The DOT said: “the Department proposes the following critical remedies and conditions to address these issues: maintenance of current third-party interline agreements, the removal of exclusivity provisions, a 10-year expiration and reassessment requirement, and the removal of a capacity constraint clause located in the joint venture agreement, which artificially limits growth during the initial stages of the proposed relationship.”
The two parties now have 14 days to respond to the tentative decision. In a joint statement, the airlines said:
“LATAM Group and Delta Air Lines welcome the US Department of Transportation’s (DOT) preliminary decision to approve their US/Canada-South America (Brazil, Chile, Colombia, Paraguay, Peru, and Uruguay) Joint Venture agreement, which will significantly enhance travel options for customers traveling between the two regions.
Once the DOT confirms its decision, the airlines will work to deepen their strategic alliance, enabling them to offer consumer benefits, including increased flight availability, more routes between the US/Canada and South America, enhanced frequent flyer benefits, as well as access to shared facilities and services at the airports where the airlines operate.”
A closer look at Delta and LATAM’s JV
Both companies announced they would file for a Joint Venture Agreement in 2020. This JV would allow them to plan, price, and share revenues and costs covering routes between the United States and Canada on one end and the South American region on the other. It would also allow them to compete better against American Airlines and United Airlines, which already have partnerships with Latin American carriers such as GOL, JetSMART, and Copa Airlines.
The proposed JV is an incremental profit and loss-sharing alliance that provides for metal
neutrality between the carriers and covers all nonstop flights between North America and the South American regions, as well as flights connecting to the nonstop services that operate within the geographic scope of the proposed JV.
According to the two airlines, the JV will:
- Cover 7,000 city-pair markets;
- Provide new or expanded service on at least 18 nonstop routes;
- Provide approximately $460 million in estimated annual consumer benefits;
- Optimize connectivity between Delta’s and LATAM’s hub networks;
- Lower prices by jointly setting fares and managing seat inventory by up to $56 million annually;
- Create an immunized network that provides critical mass to compete against the larger American Airlines and United Airlines networks in the region; and
- Use efficiencies of the combined operations to optimize aircraft utilization, enhance schedules, and lower costs, with a joint sales force to target key customers.
With the JV in place, Delta and LATAM estimate they will attract 1,000,000 more annual U.S.-South America passengers that would have otherwise flown on competing carriers. They estimate capacity will increase more than 68% once demand conditions return to pre-pandemic normal levels.
Both carriers’ networks are largely complementary, and the only route overlap exists in the New York-Sao Paulo city-pair market. LATAM and Delta proposed new, reinstated, or expanded services on at least 18 routes.
Moreover, if the JV is approved, LATAM will have increased access to North American markets over Delta’s Atlanta, Boston, Los Angeles, and New York City hubs, and Delta will have increased access to over 160 South American markets over LATAM’s hubs at Bogota, Lima, Santiago, and Sao Paulo.
Daniel Martínez Garbuno is a Mexican journalist. He has specialized in the air industry working mainly for A21, a Mexican media outlet focused entirely on the aviation world. He has also published on other sites like Simple Flying, Roads & Kingdoms, Proceso, El Economista, Buzos de la Noticia, Contenido, and Notimex.