Delta Air Lines and LATAM Airlines Group have agreed to all of the terms and remedies proposed by the Department of Transportation (DOT) to approve the joint venture agreement between the two companies. Nevertheless, Delta pilots have expressed their objections to the corrective measures imposed by the DOT. Let’s investigate further.
Accept all terms
On Thursday, Delta and LATAM applauded the Department for its interim approval and granting of antitrust immunity to the joint venture agreement and related alliance agreement between the two companies.
They also agreed to all of the terms and remedies offered by the Department, including maintaining current interlining agreements with third parties, removing exclusivity provisions, a 10-year expiration and reassessment requirement, and removing a capacity constraint clause.
After agreeing to the remedies, LATAM and Delta asked the DOT to quickly issue a final order approving the joint venture. Once this is done, companies will be able to “begin to deliver the substantial public benefits that will result from deeper and more comprehensive cooperation that can only be achieved through their JV.”
Delta and LATAM have agreed to all conditions and remedies offered by DOT. Photo: Vincenzo Pace | Single flight.
Nevertheless, the Delta Master Executive Council of the Air Line Pilots Association (ALTA) objected to DOT’s tentative approval of the proposed joint venture.
According to the pilots, the DOT erred in characterizing the capacity growth allowance requirement as “capacity constraint clause”.
In its analysis, the DOT proposed “the removal of a capacity constraint clause located in the joint venture agreement, which artificially limits growth during the early stages of the proposed relationship.” In particular, the DOT appears to be concerned about LATAM’s ability to restore its pre-pandemic capacity levels due to this clause and the airline’s recent Chapter 11 bankruptcy proceeding.
The pilots urged the DOT to leave the capacity growth allowance provision in place. This ensures that Delta and its employees receive a fair share of new flights generated by the joint venture.
According to the pilots, the Joint Venture could have commercial effects similar to those resulting from a merger; thus, both parties will act as a single entity.
“From a competitive perspective, it doesn’t matter whether LATAM or Delta operates the additional service resulting from the joint venture, only that the service is operated. The Department’s goal should not be to restore LATAM to stand-alone operation, but rather to enable the joint venture to restore and expand the service beyond what previously existed,” add the pilots.
Delta pilots objected to the DOT’s tentative approval of the JV. Photo: Guillermo Quiroz Martínez via
What are the advantages of the JV?
Delta and LATAM have been seeking a joint venture since May 2020. This strategic alliance would include codeshare agreements between Delta and LATAM subsidiaries in Peru, Ecuador, Colombia, Chile and Brazil.
Overall, the joint venture would cover 7,000 city-pair markets; offer new or expanded service on at least 18 non-stop routes; provide approximately US$460 million in estimated annual consumer benefits; optimize connectivity between Delta’s hub networks and LATAM; lower price; create an immune network that would compete with the American Airlines and United Airlines networks in the region; and using the efficiencies of combined operations to optimize aircraft utilization, improve schedules and reduce costs, with a joint sales force to target key customers.
With the JV in place, the two airlines estimate that it will attract around one million additional annual passengers and increase their capacity by more than 68%.
The joint venture has already been approved by several South American countries, including Brazil, Chile and Uruguay.
What do you think of the joint venture between Delta and LATAM? Let us know in the comments below.