Avianca and Viva Air Expect Year-End Approval of Merger in Colombia

Photo credit: A Viva Air Airbus A320neo Viva Air

Avianca and Viva Air could have regulatory approval in hand for their merger by the end of the year, Viva Air CEO Felix Antelo said this week.

The combination, first unveiled in April, will bring together Colombia’s two largest airlines under a single ownership structure. Avianca and Viva plan to operate separately but in a coordinated fashion, and maintain their respective brands once the deal is complete. They applied for antitrust approval from Colombian authorities in August.

And Viva stands to become the budget arm of the new Abra Group when the separate combination of Avianca and Gol is approved. Abra aims to become the equivalent of Europe’s International Airlines Group in South America, and could eventually also include Chile’s Sky Airline.

“It will provide for us a financial muscle way stronger and better than what we had before,” Antelo said on the sidelines of the ALTA Leaders Forum in Buenos Aires. “We are going to keep the [low-cost] model around, we’re going to keep the brand around, [and] we’re going to keep the low fares around.”

That muscle, as Antelo put it, could be necessary if the strong travel demand Latin American airlines are seeing weakens. Unlike their U.S. counterparts, industry leaders were quick to caution in Buenos Aires this week that the outlook could change quickly due to the uncertain economic outlook.

Antelo cited cost synergies for both airlines as benefits of the combination, but also the potential for commercial upsides. For example, on a route where Avianca and Viva each operate one flight they could coordinate their schedules to cover different times of day and offer travelers better options, rather than competing in the same time slot, he said. Antelo repeatedly cited the example of Iberia and Vueling in Europe; both are Spanish carriers owned by IAG but Iberia is the higher-cost network airline and Vueling the budget point-to-point operator, and they coordinate in markets where they overlap.

Viva, Antelo added, does not intend to cancel routes as part of the Avianca or Abra deals.

“We saw that as a good investment, as it was a segment that was growing and different than us,” Avianca CEO Adrian Neuhauser said at the summit. The Bogotá-based carrier dramatically restructured in the U.S. Chapter 11 bankruptcy process from a high-cost legacy airline to a hybrid airline that is focused on lower costs.

Neuhauser similarly sees Viva as complementary to Avianca as the former’s costs remain below those of the latter, which will allow Avianca — and Abra — to position Viva as the deep discount brand of the group.

Avianca and Gol combined will fly nearly 60 percent of Colombia’s domestic capacity in the fourth quarter, according to Diio by Cirium schedules. Their largest competitor, Latam Airlines Group, will fly roughly 24 percent of capacity.

Within Latin America, Abra’s three main airlines — Avianca, Gol, and Viva — will fly 19 percent of the capacity in the December quarter, Diio shows. Latam, for comparison, will fly 23 percent of capacity in the region.

The addition of Sky to Abra would boost the group’s share to 22 percent of capacity in Latin America based on fourth quarter numbers. Avianca holds a convertible bond that would give it a 42 percent equity stake in Sky, Neuhauser said. However, he emphasized that Avianca’s focus is on closing the main transaction, that is the combination with Gol.

The Avianca, Gol, and Viva merger is not the only consolidation underway in Latin America. Aerolineas Argentinas and Gol will launch a new coordinated air shuttle — essentially a joint venture but on a single route — between Buenos Aires and Sao Paulo on November 1 that could expand to other markets. And American Airlines has invested in Gol and is investing Chile’s JetSmart to deepen its partnerships in the region.