Delta and Latam Airlines Look for a South American Edge Under New Partnership

Delta Air Lines and Latam Airlines Group are on the cusp of regulatory sign off for a broad partnership that will give them a competitive edge — at least for now — on flights between the U.S. and South America.

The U.S. Department of Transportation found that the proposed immunized joint venture would provide "substantial" benefits in the market, and tentatively approved the pact with several conditions on June 23. Those conditions include a 10-year term, and requirements that both Delta and Latam interline with other non-aligned South American and U.S. airlines, respectively, if such a tie up is requested.

The airlines, in a joint statement, said they "applaud" the DOT's decision, and added that the partnership will "vastly improve travel options and service for customers traveling between the two regions." They plan to begin implementing the alliance once the regulator finalizes its decision that, given the required response and comment periods, could not occur before July 18.

Approval of the Delta-Latam joint venture is a big win for the airlines. Both have suffered major blows to their international partnership ambitions at the hands of regulators in recent years. Delta dropped its planned joint venture with Canada's WestJet in late 2020 after the DOT requested what the airlines saw as "arbitrary and capricious" conditions. And Latam ended its long-standing partnership with American Airlines in 2019 after a Chilean court blocked their planned joint venture.

Latam, which is operating under U.S. Chapter 11 bankruptcy protection, included the Delta joint venture as a key part of its restructuring plan. A bankruptcy judge approved that plan earlier in June, and Latam plans to exit Chapter 11 in the second half of the year.

The partnership will give Delta and Latam a competitive edge in the dynamic U.S.-South America market for the time being. The airlines together will operate 21 percent of the seats in the market this year based on current schedules, according to Cirium data. That is second only to American's 32 percent share, but well ahead of the 11 percent share of the next largest airline, Avianca.

That edge is expected to face new challenges in the near future. Avianca and Gol are planning to combine under the new holding company, Abra — the airlines will maintain independent brands — later this year. Avianca and Copa Airlines continue to pursue a joint venture with United Airlines; a three-way pact would give the airlines a 21 percent share of U.S.-South America seats. And American, not to be left behind, is forging equity partnerships with Gol and Chile's JetSmart.

Delta and Latam have promised at least nine new U.S.-South America routes once demand normalizes following the pandemic as part of their partnership. The former also committed to expanding its presence in Miami, which is Latam's main U.S. gateway. And the airlines also committed to expanding service on nine more existing routes, whether that is additional flights or extending a seasonal route to year-round service.

While details of their planned expansion are limited, regulatory filings suggest Latam plans to add new flights to Delta's hubs in Atlanta, Boston, Los Angeles, and New York, and Delta to Latam's hubs in Bogotá, Lima, Santiago, and São Paulo. Atlanta would be a new destination for Latam.

The U.S. is the last country to sign off on Delta and Latam's partnership. The carriers already have approval in Brazil, Chile, Colombia, Paraguay, Peru, and Uruguay.