LAN and GOL are looking to continue their rapid expansion by opening new domestic units in other Latin American countries.

Brazil is the focus of LAN's most recent venture, where it could convert loans into equity and take a minority stake in Varig's successor, VRG Linhas Aereas. This follows a typical pattern for Chile's LAN, which has pioneered the cross-border model by launching affiliate airlines in Argentina, Ecuador and Peru.

The Santiago-based carrier has long sought access to Brazil, the largest market in South America, and saw its chance when VRG, also known as "New Varig", sought financial support. LAN loaned the new airline $17.1 million under terms that give it an option to convert that loan into equity. LAN and VRG are now in talks about LAN becoming a shareholder in the Brazilian carrier.

VRG says it is pleased at LAN's interest. Neither VRG nor LAN have disclosed the size of LAN's potential stake, but analysts estimate it at around 10%. If LAN bought the entire stake of US investment fund MatlinPatterson, and local reports suggest it might, LAN could own the 20% maximum allowed for foreigners.

Analysts question whether VRG is the best candidate for LAN's entry into Brazil. They cite deadlines imposed on VRG to use or lose routes, and its recent dispute over slots at São Paulo's Congonhas airport. At the moment, however, no other airline in Brazil is an obvious candidate.

LAN's interest, according to local reports, has sparked GOL's interest in a stake of its own in VRG, but no-one close to the talks will confirm this.

While LAN ponders its entry into Brazil, GOL is studying whether to set up domestic units in Argentina and Peru. Officials in both countries have invited São Paulo-based GOL, citing the benefits to domestic competition that would come from entry by a local unit of the low-cost carrier. The Argentinian suggestion emerged during bilateral talks with Brazil. Peru's invitation follows the granting of a licence for GOL for flights to and from Lima.

GOL recently shelved plans for a local unit in Mexico, partly due to the proliferation of low-cost Mexican carriers and because of so many growth opportunities elsewhere. GOL currently has the fastest growing route network of any airline in South America, and saw traffic rise nearly 40% last year.

Both the LAN and GOL developments are in early stages, but they underscore the potential for cross-­border expansion within Latin America.

Source: Airline Business