ANALYSIS: TAM decison gives Oneworld further lift

London
Source:
This story is sourced from Pro
See more Pro news »

If a year ago the troubles seemed to be coming thick and fast for some of Oneworld's carriers, the confirmation that Brazilian carrier TAM is to join the alliance has capped an altogether happier period since.

A year ago Oneworld was suffering after the collapse of Malev, the continued failure to get Mexicana back in the air, the bankruptcy filing of founder member American Airlines and the financial meltdown of the airline identified as its partner in India, Kingfisher Airlines.

While challenges remains - and others have emerged such as Qantas ditching of its kangaroo route partnership with British Airways and the continued delay in the opening of new Air Berlin's new airport hub - the last few months have delivered a series of positives.

Plans to bring Qatar Airways into the alliance provide it a strengthened presence in the Middle East and beyond, while American Airlines looks set to emerge stronger - and bigger - from Chapter 11 bankruptcy protection through a merger with US Airways. Now LATAM has put an end to nearly three years of uncertainty over its future alliance strategy, aligning all its airline partner with Oneworld. Not only does that ensure LAN remains in Oneworld, it brings the alliance its first Brazilian partner in the shape of TAM.

"This is great news for us, becoming the biggest alliance out of South America," says Oneworld chief executive Bruce Ashby. "Brazil is a huge market. It's a BRIC country."

TAM is the largest Brazilian airline. It carried nearly 38 million passengers in 2011, generating revenues of $7.6 billion. It operates a fleet of 161 aircraft and had a further 100 on order.

The Brazilian carrier only formally joined Star Alliance in 2010, but its future in the grouping has been under scrutiny ever since its merger with LAN was unveiled a few months later. The partners put an alliance decision on hold as it concentrated on completing the merger, but this process stalled by delays in the regulatory process which meant the new combined LATAM Airlines was only established last summer.

During this period Star fought hard to keep its Brazilian carrier, while an option outside the alliances was also considered. Star it appeared was always going to have its work cut out, in part because of LAN's long-standing membership in Oneworld but also after a competition ruling attached to the merger prevented LATAM from being in the same alliance as Latin America's next biggest carrier AviancaTaca. The latter joined Star Alliance last year.

"While we were confident we eventually [would get] the carrier, it's nice to have it confirmed. So while it's not a great surprise, it's a great pleasure for us," says Ashby. "One of the reasons why was we had a great business proposition. If you look at where travellers from the region go, the big cities - New York, Miami, Madrid and London - we have alliance hubs in each of those places."

Existing partners American, British Airways, Iberia and LAN already serve seven destinations in Brazil, but TAM will bring with it 42 new destinations to Oneworld.

The decision for TAM to join Oneworld was part of a wider commitment by LATAM Airlines to align all its airline partners with the alliance. That means LAN Colombia will also join the alliance later this year, bringing with it 21 new destinations to Oneworld.

No precise date has been set yet for TAM's entry into Oneworld, but it will be timed for immediately after it leaves Star and is expected around the second quarter of next year.

"Membership of Latin America's leading airline group, LATAM Airlines Group, in Oneworld represents a major landmark in our journey towards establishing Oneworld firmly as the first choice airline alliance for travellers not just across the Americas, but the world over," says American Airlines chief executive Tom Horton.

The news comes shortly after the alliance was boosted by plans for the merger of American with another Star Alliance carrier US Airways. No date has yet been set for US Airways to quit Star, but the carrier will join Oneworld as part of its planned merger with American.

That deal has been welcomed by American's Oneworld partners. "The merged American and US Airways will be the biggest carrier operating out of the USA," says Ashby. "In terms of Oneworld, it's a healthier American Airlines with more mass and more feed. So it's good for all the other alliance members."

Oneworld is the smallest of the global alliances by size, though it has always stressed it attaches more value from the number of key business markets it serves. The grouping last year held a 15% share of traffic among the top 200 airlines and Malaysia Airlines last month became the grouping's 12th active member.

ONEWORLD ALLIANCE SNAPSHOT

Airline

2011 Pax traffic (RPK bn)

2011 revenues ($m)

American Airlines 203.6 24.0
British Airways** 117.3 22.8
Qantas 106.7 14.8
Cathay Pacific 90.3 12.6
Air Berlin 52.1 5.9
Iberia 51.2
Japan Airlines 48.2 15.3
Malaysia Airlines 39.7 4.6
LAN Airlines 38.4 5.7
Finnair 21.5 2.8
S7 Airlines 10.5 1.5
Royal Jordanian 8.4 1.0
Affiliate carriers 37.6
*TRAFFIC SHARE 15.8%
Qatar Airlines 64.7 6.8
SriLankan Airlines 11.3 0.7
TAM Airlines 56.7 7.6
US Airways 97.8 13.3
* TRAFFIC SHARE IF CARRIERS JOIN 19.5%
Notes: Based in 2012 Airline Business alliance survey. * Based on share of the top 200 airlines and those alliance members outside the top 200 **IAG figure covering British Airways and Iberia

TAM and LAN Colombia, together with member elects Qatar Airways and SriLankan and an American merged with US Airways would take Oneworld's destinations to more than 950, carrying combined passengers of 480 million and generating annual revenues of $140 billion.

For Star Alliance it represents a second setback in the Brazilian market. It had turned to TAM after the collapse of its first partner in the region Varig.

Alternatives in Brazil, at present at least, are in short supply. The country's second largest operating, evolving low-cost carrier Gol, has continued to shun alliance membership. But it is already closely aligned to SkyTeam, not least because of Delta Air Lines' minority investment which added to codeshares with SkyTeam carriers including Air France-KLM

The third biggest player in the Brazilian market is another merging operator Azul-Trip. The regional operator has just secured the regulatory green light for its merger.

Elsewhere in South America, Star Alliance has AviancaTaca - the Central American grouping pooling together carriers from Colombia, Ecuador and El Salvador - and Panamanian carrier Copa Airlines.

SkyTeam last year secured its first carrier in South America in the shape of Aerolineas Argentinas.