South America's airlines are entering a new phase of alliances and cooperationThe realignment of the Latin American airline business is gathering pace. Chile's antimonopolies board has finally decided to permit LanChile to acquire Ladeco. Enjoying the fruits of a remarkable financial turnaround, Vasp of Brazil is acquiring Ecuatoriana and bidding for Bolivia's LAB. Profitability has returned to carriers such as Varig and Transbrasil. And Aerolineas Argentinas is showing signs of an improved financial performance, although doubts remain over whether Iberia will continue to control the carrier for the long term.

In the past, success has been an elusive commodity for most Latin American airlines. However, their prospects look more positive than ever. As well as more buoyant economies, the main reasons for better times - and the realignment - are privatisation and international competition.

Governments in the region have all recognised that airlines need to be privately owned, allowing them to have commercial management, an efficient workforce, and freedom to operate in the marketplace. The sales of Ecuatoriana and LAB bring government ownership of airlines in the region to an end - with the ironic exception of Aerolineas Argentinas, which is controlled by a government owned entity based in Spain.

While governments have been coming to terms with the fact that their involvement in airlines is inappropriate, airline managers have had their eyes opened to the vagaries of the free market. As well as the painful internal restructuring which has been the hallmark of the international airline industry in the 1990s, Latin American airline managers have faced a new competitive environment.

American's Bob Crandall likes to take credit for recent improvements in Latin American carriers' fortunes, and in many respects he is right. American has forced Latin carriers to sharpen up their act or go out of business. Most have done the former, although some, such as Venezuela's Aeropostal and Paraguay's LAP, have failed to stay the course. In a sense, it's a form of education. American has brought to Latin America the tools it has developed in more mature, competitive markets elsewhere - a case of respond or die.

The only tangible result to cover most of the region is the LatinPass frequent flyer programme. However, moves to form defensive strategic alliances to counter the might of the likes of American are now intensifying.

Chile's antimonopolies board was right to allow LanChile and Ladeco to combine, along with cargo carrier Fast Air. However the decision to oblige the two carriers to go on competing in the domestic market looks shaky given the problems encountered in Mexico where Aeromexico and Mexicana have also been denied sufficient latitude to work together, as they must. Vasp's moves in Ecuador and Bolivia represent a different strategy, more akin to Taca's formation of a group of like-minded carriers which can share resources.

Against this positive background, there are plenty of imponderables. Iberia may be forced to divest its stake in Aerolineas Argentinas for financial reasons, leaving Aerolineas needing a new management team and new alliance partners. The futures of the two largest Mexican carriers and Viasa of Venezuela look uncertain. And apart from the Iberia group, moves to form alliances with airlines outside the region are still in their infancy, with just a few codesharing deals.

Finally, mergers and alliances do not always work, as SAS, Sabena and CSA have found. Bringing together two or more companies with disparate management styles and proud employees will always be a tough job, with no guarantee of success.

Source: Airline Business