Due to Low Sales Impact, LATAM and Azul End Their Codeshare Agreement
The alliance between LATAM and Azul, established during the height of the pandemic crisis, did not generate the expected sales growth and was canceled. LATAM reaffirmed that it never considered a merger with Azul, which is now seeking to integrate with GOL.
Azul confirmed the end of its partnership with LATAM in a market statement issued on Monday night (24), asserting that the company is well-positioned to lead a consolidation process in Brazil’s airline industry.
While Azul did not disclose details of its consolidation strategy, the termination of its codeshare agreement with the Brazilian subsidiary of the Latin American holding company appears to be the first step in this plan.
According to AEROIN, LATAM Brazil stated that continuing the agreement amid its recovery phase “doesn’t make sense”:
“This codeshare agreement was a temporary solution for both companies to manage the drop in sales and the reduction of air routes during the height of the pandemic. With business improving, it is no longer necessary. Additionally, the expected expansion and passenger volume benefits did not meet LATAM’s initial projections” said Jerome Cadier, CEO of LATAM Brazil.
Azul's Position
Azul's statement emphasized its strategic stance:
“Azul has updated the market regarding its codeshare agreement with LATAM and a potential industry consolidation. The company believes consolidation is a key component of the post-pandemic industry landscape, and Azul is in a strong position to lead this process. We have engaged advisors and are actively exploring consolidation opportunities in the region.”
Azul's CEO, John Rodgerson, commented:
“The codeshare with LATAM was a unique pandemic response. We also recognized that industry consolidation would be essential for post-pandemic recovery, and Azul would play a central role in this process. By the end of the first quarter of 2021, we hired financial advisors and began exploring consolidation opportunities. We believe LATAM’s cancellation of the codeshare is a reaction to this process.”
He added:
“Azul is emerging from this crisis in a leadership position in terms of liquidity, network recovery, and competitive advantages. Our plans remain unchanged, and we are confident we are in the strongest position to pursue strategic alternatives at this time.”
Azul will keep the market informed of any developments.
LATAM Brazil’s Perspective
LATAM Brazil’s CEO, Jerome Cadier, clarified that the codeshare agreement, established during the airline’s Chapter 11 restructuring, failed to deliver the anticipated increase in demand and sales, leading to its termination.
“While Azul proposed a potential merger, LATAM never considered this option. There are many ways to integrate businesses, and the codeshare was a specific response to the pandemic crisis,” Cadier told O Globo.
He explained that the limited route coverage restricted the agreement’s impact and made a merger unlikely. According to Cadier, Azul had anticipated this scenario when signing the agreement and is now exploring an integration with GOL through the Abra Group.
As reported by AEROIN, the codeshare agreement allowed passengers to book a single ticket that combined Azul and LATAM flights, with automatic baggage transfer and loyalty program benefits. However, the limited number of routes was a strategic decision to avoid scrutiny from Brazil’s Administrative Council for Economic Defense (CADE), the country’s antitrust regulator.
Cadier noted that despite initial expectations, demand growth did not materialize as projected:
“We assessed the additional demand we could generate through the passenger experience, but sales growth did not meet expectations. The codeshare was a first step, but there was no consensus on what should come next, so we decided to terminate the agreement. For LATAM, at that point, it no longer made sense to continue.”
Lastly, Cadier differentiated the LATAM-Azul codeshare from the GOL-Azul alliance, explaining that while the LATAM agreement was aimed at pandemic recovery, the partnership with GOL seeks to reduce costs and strengthen the Abra Group’s financial position.
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