Air France-KLM eyes expansion in booming South America with potential TAP Deal

Air France-KLM, International Airlines Group, and the Lufthansa Group shared more than just a bullish outlook for travel demand during recent investor calls. They all want a bigger piece of the standout Latin or South America region, and they are not averse to capturing it through acquisitions. Air France-KLM is eyeing TAP Air Portugal, IAG has its sights set on Spain’s Air Europa, and Lufthansa is near a deal for Italy’s ITA Airways. Each transaction, if they happen, would give these respective groups a larger share of the booming Europe-Latin America market. “TAP has a very strong position geographically at the southernmost point in Europe towards South America, and they do have a very strong network to Brazil with 11 cities online nonstop out of Lisbon,” Air France-KLM CEO Ben Smith said during an earnings call on May 5. “So it’s very interesting, and could be potentially eventually accretive to our bottom line performance.” Air France-KLM, for now, is just eyeing a deal with TAP. The Portuguese government must initiate a sale first, which Smith thinks should happen around summertime. And if the parameters meet the group’s requirements — for one, not diluting its target of a 7-8% operating margin from 2024 — it plans to “participate in that process.” The interest in Latin America is for good reason. In Q1, Air France-KLM saw South Atlantic yields jump nearly 33% compared to 2019 on just 4% less capacity. Lufthansa saw group yields on Latin America routes jump nearly 43% over the same period. IAG, which did not publish a comparison to 2019, saw Latin America passenger unit revenues increase 33% compared to last year. At all three groups, Latin yield performance was the strongest across their global networks except for Asia, where capacity remained artificially constrained. Industry capacity between Europe and Latin America was down just 2% compared to pre-pandemic during the first half of the year, according to Diio by Cirium schedules. Air France-KLM is the largest of the European groups to Latin America with a 21% share of capacity during the first six months of the year, Diio data show. IAG comes in a close second with a 19% share, and the Lufthansa Group lags with just a 7% share. Iberia, however, is the single largest carrier ahead of Air France. “We are missing a southern hub compared to our European competitors, especially for the growing — the [origin and destination] traffic in and out of Africa and Latin America,” Lufthansa Group CEO Carsten Spohr said earlier in May. This is one reason for the group’s planned investment in ITA, which it has until May 12 to finalize with the Italian government. None of the European Big Three have an immunized joint venture with a Latin American airline covering intercontinental flights. <br/>