Summary
- GOL, Azul, and LATAM dominate Brazilian aviation.
- The Brazilian government aims to merge the 3 airlines to reduce the need for public financial support and prevent further bankruptcies.
- US legacy carriers maintain stakes and partnerships with all the airlines in question, which could drastically shift post-merger.
The Brazilian aviation industry is in a unique position, with a classic triopoly of three airlines—GOL, Azul, and LATAM—controlling over 99% of the domestic market. All three of these airlines operate a different business model, cater to different customer bases, and have non-uniform backstories that have created complex corporate structures.
Each airline sits in a unique position from a business perspective, with the carrier in the most dire financial straights obviously being GOL, a budget airline that currently sits under Chapter 11 Bankruptcy protection. Azul Linheas Aereas, a non-traditional low-cost carrier launched by legendary industry figure David Neeleman, may not be the most financially successful among South American airlines, but it certainly is not under bankruptcy protection.
Photo: Philip Pilosian | Shutterstock
The third airline of note is LATAM, a legacy carrier conglomerate that originally emerged when LAN and TAM joined forces and is slowly beginning to dominate the continent’s airline industry. According to industry sources, the Brazilian government is in the process of engineering what could be the most ambitious airline merger in history, bringing together LATAM, GOL, and Azul into a singular national airline.
An interesting decision
According to reports published by View From the Wing, the Brazilian government has some unique motivations for attempting to bring together these three massive airlines. The goals are to reduce the amount of support for the airline industry provided by the government, as well as to prevent bankruptcies like that of GOL.
Related
US Bankruptcy Court Approves $1 Billion Loan For GOL Amidst Chapter 11 Process
The Brazilian airline entered Chapter 11 last month.
There are significant uphill battles that the Brazilian government will need to face in order to successfully execute this merger, many of which relate to the vast differences in business model and staff arrangements at the airlines in question. Union objections are one of the principal hurdles the merger will have to overcome, and the government has demonstrated its interest in pursuing multiple kinds of incentives to gain support from labor organizations.
Photo: Guilherme Amancio Moreno | Shutterstock
Many have also raised concerns regarding the monopoly that would be created as a result of this proposed merger. With such an overwhelming portion of the market controlled by the three carriers, there could be little opportunity for others to enter the market, a challenge for both the consumer and businesses.
US carriers have major stakes
While it may not immediately seem the case, US legacy carriers all have interests in South America, and this merger could drastically shift American, Delta, and United’s strategic positions in the region. According to an analysis from Brazilian media outlet Reserved Report, American Airlines owns an explicit 6.5% stake in now-bankrupt GOL.
Photo: Joa Souza | Shutterstock
Delta’s strategic position is in LATAM, which it owns a 20% stake in after stealing it right under the nose of competitor American. While American was too busy attempting to secure antitrust approvals for the acquisition, Delta was quick to acquire this stake. However, Delta relinquished its stake in GOL in order to get its acquisition approved.
United Airlines is also relevant to the discussion here, although it does not hold an explicit stake in the three airlines relevant to the merger. Nonetheless, the airline codeshares with Azul to offer increased seamless connectivity across South America. Should the merger eventually go through, these carriers could see their positions shift and partnerships terminated or expanded.
