United courting Brazil’s Azul for partnership with Avianca, Copa
These days U.S. legacy carriers are vying for their piece of the Latin America cake. The latest in line – United Airlines. Brazil’s Azul Linhas Aéreas is reportedly in talks to join United, along with Avianca Holdings and Copa Holdings, in a partnership for flights between the U.S. and Latin America. With Delta’s newly acquired 20% stake in Chilean carrier LATAM and American Airlines’ alleged negotiations with Brazil’s GOL, pursuing a deal with Azul may be the best step for United in this forming web of to-be alliances. But is Azul a good fit for United to compete with Delta’s new partnership?
The third largest airline in Brazil, Azul, has confirmed on October 14, 2019, that it is in talks to form a joint venture with United, Colombian airline Avianca and Panama’s Copa Airlines, according to a report by Reuters. The three members of Star Alliance announced in November 2018 a planned joint business agreement (JBA) to coordinate routes on the U.S.-Latin America market, and now, apparently, want Azul to join the table.
"This agreement represents the next chapter in U.S.-Latin American air travel," United's president Scott Kirby said in an official statement back in November 2018. "We are excited to work with our Star Alliance partners Avianca and Copa to bring much-needed competition and growth to many underserved markets while providing a better overall experience for business and leisure customers traveling across the Western Hemisphere”.
With the proposed venture, the carriers aim to serve more than 275 destinations throughout 19 countries in Central and South America as well as the U.S. According to Hernan Rincon, Avianca’s executive president and CEO, comment in the press release: "We are certain that together we are stronger in the United States – Latin America market than any of the three airlines individually".
The deal, however, has been delayed due to the uncertainty regarding Avianca’s financial situation and is yet to receive regulatory approval, as is Delta’s strategic partnership with GOL. Delta, together with the Brazilian carrier aim higher – the two airlines plan to serve 435 destinations worldwide and carry more passengers between North America and Latin America than “any other joint venture”, according to an official press release by the U.S. carrier.
With or without Azul in their midst, when considering the viability of the planned partnership between United, Avianca and Copa, the Colombian company raises concerns. Earlier this year, Avianca (separate company from the defunct Avianca Brasil) saw a management overhaul due to the non-payment of $456 million loan from United, one of the controlling shareholders in the company.
Despite having embarked on a new transformation strategy, in the second quarter 2019, the airline posted an operating loss of $36 million. Things may pick up, however, now that Avianca successfully exchanged $475 million in bonds and has been promised a further $200 million loan from United and Kingsland Holdings, as Reuters reports.
United and Azul vs. Delta and LATAM
Brazil is South America’s largest and most competitive market, hence, U.S. legacy carriers – Delta, United and American Airlines – are flocking to the country, courting the largest three airlines in the market – LATAM (represented by LATAM Brasil), GOL and Azul. For Delta’s new partner LATAM, the biggest threat is the rise of the two low-cost carriers.
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