ANALYSIS: Will Latam alliance endgame spark scramble?

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Alliance positioning is reaching a critical phase in Latin America. The scramble started when LAN and TAM first announced plans to merge, setting off a storm of speculation about which global alliance they would pick. As that merger nears, rivals have felt a need to align themselves too. As a result, by mid-year every major Latin airline will belong to one of the global alliances.

LAN and TAM will announce their choice in March. In May AviancaTaca says it will join Star Alliance. Then in June, Aerolineas Argentinas expects to become a SkyTeam member.

LAN and TAM's decision will fulfil a requirement set by anti-trust agencies in Chile and Brazil - that the two may not remain in separate alliances, and may merge only if they join a single alliance. A few analysts suggest they might forego all alliances, but LAN's senior managers have dropped enough hints to convince most insiders that TAM will leave Star and Latam, the airline born of this merger, will stick with LAN's long-standing membership in Oneworld.

Behind these headlines, jockeying continues. In the second half of January Gol and Delta Airlines hope to implement a strategic alliance they unveiled in December. This pact does not commit The Brazilian carrier to any global alliance, but aligns it more closely with Delta through codeshares and co-ordinated flights and loyalty programmes. Gol chief executive Constantino de Oliveira Jr. calls it "a long-term partnership." As part of the deal Delta's $100 million investment in Gol earns it a seat on Gol's board and acts as a pre-emptive move to discourage Star and Oneworld from trying to woo Gol.

John Thomas, global head of the aviation and travel section at L.E.K Consulting, credits Delta with "taking the initiative to ensure that SkyTeam has a presence in three out of four of Latin America's largest aviation markets [Brazil, Mexico, Colombia, and Argentina]."

The other visible positioning is AviancaTaca's plan to ink a codeshare with Chile's Sky Airline in the first quarter of this year. TacaPeru and Sky signed a forerunner to this in November. Sky, with almost 20% of Chile's domestic market, has become an attractive potential partner at a time when AviancaTaca needs to fill out its Latin network.

If all these plans play out as expected, Brazil will be the only Latin nation where all three global alliances enjoy some kind of presence. TAM, as part of Latam, will be a new Oneworld member. SkyTeam will point to the Delta-Gol alliance, and Star's AviancaTaca will have the former OceanAir, now called AviancaBrasil. As Brazil's sixth largest carrier, AviancaBrasil is hardly a match for Latam and Gol, but it is growing and it offers more of a presence than Star or AviancaTaca can claim in nine other Latin nations - including Argentina and Mexico.

Seven Latin countries in Bolivia, Paraguay, Uruguay, and Venezuela, plus the three Guianas - French Guiana, Guyana, and Suriname - have no alliance affiliation. Most are too small to attract global interest. Bolivia and Venezuela are also unlikely candidates due to policies favouring their state-owned carriers.

Only seven Latin carriers with scheduled jet service, apart from those in Bolivia and Venezuela, remain unaffiliated. This includes Ecuador's TAME, Chile's PAL, Uruguay's Pluna, Surinam Airways, and Mexico's three low-cost carriers. All are small.

Matching up these potential candidates with worthwhile markets and the most obvious white spots on alliance maps suggests Mexico as the only place where Latam or AviancaTaca might have any local interest. Even though Mexico is Latin America's largest aviation market after Brazil, SkyTeam has kept the only alliance presence since Mexicana's demise. Possible scenarios include some tie-up with Volaris, Interjet, VivaAerobus or a startup.

L.E.K's Thomas concedes the possibility of such a link, but thinks it more likely that Latam and AviancaTaca "will serve Mexico through bilateral arrangements".

The bigger unknown could be whether AviancaTaca will actually join or stay with Star Alliance. COPA's switch from SkyTeam to Star when Continental merged with United makes it awkward both for COPA and AviancaTaca to share the same alliance. As Thomas points out, they are traditional rivals with competing hubs. "AviancaTaca is the dominant airline in Colombia and COPA has built a dominant position with its hub next door in Panama."

Even if AviancaTaca proceeds with its plan to join Star in May, Thomas says "that is not necessarily a permanent decision." If Latam sticks with Oneworld, a switch by AviancaTaca away from Star would be to SkyTeam, where Avianca and Delta have had historic ties. Then, as Thomas points out, Delta would attain its goal of a presence in the four largest Latin markets.

The first phase of Latin consolidation may be nearing its end, but the scramble over alignments is far from over.