LATAM Part 3: What can customers (B2B & B2C) expect in terms of benefits from this proposed tie-up?

Now this is a really interesting and fun topic. There are so many benefits one could easily loose sight of them all. First and utmost, LATAM will be South America's only major player to be actively involved in passenger transport, logistics and MRO, all under one roof. This in itself will allow the new holding company to offer a wide range of services of unparalleled quality at competitive prices.

The sheer size of the passenger operation alone is remarkable (for the region): according to LATAM's investor presentation, LAN and TAM carried 45,8 million passengers in 2009. That's the equivalent to the sum of passengers Gol, Avianca-Taca and Copa combined carried in the same period.

Source: LAN-TAM Investor Presentation (August 13^th, 2010)

Another important figure is the number of served destinations. LAN and TAM serve almost twice as many destinations as the nearest contender (Brazil's Gol Linhas Aereas). More importantly, the number of destinations is bound to increase in 2011 with the establishment of "LAN Colombia". And let's not forget that with a total of 214 airplanes on order (121 for LAN and 93 for LAN), LATAM's fleet is going to grow considerably - right now the fleet count stands at 241; LAN has 98 planes while TAM has 143 - and through synergies and joint network planning, LATAM will be able to push itself into new, still unexplored markets. Also, let's not forget that LAN hasn't really ventured itself into the regional market and TAM has only recently began to do so and its presence in this market is 'shy' to say the least. A while ago I already covered this topic with Azul ("Azul goes regional - nation-wide!" published on July 23rd., 2010), consequently suffice it to say, there's plenty of potential in the South American regional market and LATAM will have an excellent starting base from which it will be able to reach into this still 'uncharted territory'.

LATAM is and will be even better positioned in South America with the most comprehensive network. This will certainly benefit local customers and will put LATAM in an excellent position, when the time comes, to negotiate a single global airline alliance as whoever 'wins' LATAM as their local partner will benefit from the best nit network in the continent to act as their feeder/defeeder. With the prospect of effectively 'running the show' in South America, virtually unmatched in terms of size and quality - number 2 in terms of passenger numbers is Brazilian low cost carrier Gol Linhas Aereas, the continent's premiere 'no frills' airline while numbers 3 & 4 (respectively Avianca-Taca and Copa Airlines) together have carried (only barely) a bit more passengers than Gol - , LATAM will be the region's ruling quality legacy carrier. This is a major plus to passengers, companies and travel agencies alike as they will suddenly be able to book the most complex itineraries on (what is practically bound to become) a single company.

That brings me to another interesting topic: loyalty-binding programs. I'm not just talking about the traditional frequent flyer program for passengers but rather corporate and agency agreements/contracts. With an extensive network, a world class product - both LAN and TAM are investing heavily in ground and in-flight product/service (on a side note: TAM is working towards becoming Latin America's first airline to offer in-flight connectivity) - LATAM will be well positioned to offer its customers (passengers, companies and travel agencies alike) the most complete, high quality travel package within South America. And since we're on the subject, a single frequent flyer program is probably going to become a priority for LATAM. Why? Quite simply because business passengers - admittedly the main focus for both LAN and TAM - still have something to say when it comes to choosing the airline for their travels and most usually end up choosing the airline where they can earn (and eventually redeem) their personal miles/points on.

With intra South American business booming, LATAM will be ideally placed to offer a complete regional agreement/contract to companies whereas the competition will only be able to offer local agreements/contracts. The same can be said about travel agencies, most notably the big corporate travel agency chains: instead of negotiating individual agreements/contracts on a local basis, they will be able to work out comprehensive 'continental' agreements/contracts, effectively simplifying processes. Additionally, both LAN and TAM are expanding their international/intercontinental operations at a very fast pace, meaning that in addition to the best South American coverage, LATAM will be in a prime position to offer passengers, companies and travel agencies excellent deals to a wide range of North American, Central American, European, South Pacific and eventually perhaps even African and Asian destinations.

Source: LAN-TAM Investor Presentation (August 13^th, 2010)

However, not only the passenger unit is bound to grow considerably from LAN and TAM’s union, but other spin off’s such as the Cargo units (LAN Cargo, ABSA Cargo, TAM Cargo, etc.) the MRO units or even TAM’s now independent loyalty binding company Multiplus Fidelidade have much to gain.

For instance: LATAM’s cargo operations will reign supreme in the continent leaving little space for smaller companies. Aside from having the best network in the region with all the belly capacity from the LAN Airlines units (Chile, Argentina, Peru, Ecuador and shortly alsoColombia) and TAM at its disposal, LATAM has a dedicated cargo fleet. This means quite simply that LATAM will be able to serve pretty much any market within South America at competitive prices – benefiting from economies of scale – and on a larger scale than anybody else. As a natural consequence, LATAM’s intercontinental cargo operations will also benefit from the new structure and be in a far better position to take on the competition.

Source: LAN-TAM Investor Presentation (August 13^th, 2010)

Multiplus Fidelidade, originally founded in 2009 as an incentive company for TAM’s frequent flyer program “Fidelidade” can also be counted as a major asset to LATAM. Since its foundation, Multiplus Fidelidade has evolved into an independent loyalty marketing company (much in the vein of Aeroplan) and even now is still (wrongfully) known by the general public as “TAM’s frequent flyer program”. While the company itself is trying to distance itself from this image, LATAM can reap benefits from its legacy (as “TAM’s frequent flyer program”) considering that the sheer size of the new airline will a) attract new customers b) strengthen ties to current and returning customers and c) attract new partners.

I could go on for quite a while here… The benefits are countless. However there are another two great beneficiaries that I need to mention. After all, Business School 101 teaches us that for any company to work (successfully) it must find the formula to balance three pillars: customers, investors and employees. First and utmost, employees are one of the elemental drivers in any company. And LATAM will boost morale as it becomes South America’s leading airline group. Employees would benefit from enhanced career opportunities and faster growth as a result of the combination of LAN and TAM. Furthermore, the scale and diversity of the new carrier would provide more stability and greater financial strength, benefiting all stakeholders. The combined airlines have more than 200 aircraft scheduled for future delivery, driving growth and increased employment across the region. This means that shareholders and the entire region itself (South America) will benefit from LAN and TAM’s proposed tie-up as the new combined airline will be a true powerhouse in the region and present new investment opportunities while at the same time creating new job opportunities. The LATAM group will effectively be among the leading airline groups in the world in terms of size, profitability and market reach.