While not unexpected, the decision has been widely discussed since TAM agreed to merge with Santiago, Chile-based LAN Airlines in 2010 to form LATAM Airlines Group. At the time of the merger announcement, each individual carrier belonged to separate, competing alliances, with LAN serving as a long-time OneWorld member since 2000, and TAM having just joined as the 27th member of Star Alliance in May 2010.
Over the following months, as the merger terms and conditions continued to unfold, the alliance decision played a huge role in shaping the future of the combined carrier. Joining a global alliance is a major financial and technical undertaking for an individual carrier. Universal standards, set by each of the three major alliances (OneWorld, Star or SkyTeam), have to be met by a certain deadline, and IT projects can take years to complete.
TAM had not been an official member of Star Alliance for even a full fiscal year when the merger intention became publicly known. Departure from an alliance can be even costlier than joining it, as Star Alliance charges a $25 million exit fee for any carrier wishing to leave the group. OneWorld, however, does not have an exit fee.
Therefore, the million dollar question became, would LAN consider leaving OneWorld to join TAM in Star, leaving OneWorld without any member presence in South America, or would TAM renege on its short-lived participation in Star?
As it turned out, LAN more or less dictated the outcome for TAM, as merger approval from the Chilean regulatory authorities mandated that LATAM Airlines Group, once formed, could not remain in the same alliance as Colombia-based AviancaTaca. Given that AviancaTaca, along with Panama flag carrier COPA, had plans to join Star Alliance in 2012, it naturally followed that TAM would be forced to leave Star, else abandon its merger plan with LAN. Once both Copa and AviancaTaca became members of Star Alliance in summer 2012, TAM had 18 months to leave.
Therefore, that left TAM with the following options: join a different alliance (OneWorld or SkyTeam), remain unaligned with any global alliance, or start its own group. Options #2 and 3 were unlikely given that, as a full-service, legacy network carrier, TAM’s dependencies on a major alliance outweighed any benefits achieved from remaining neutral or independent. TAM ranks #18 among the world’s largest network carriers, according to CAPA, and the only other major global full-service in the top-25 that pursues a non-alliance strategy is Emirates. TAM doesn’t have anywhere near the network breadth on its own metal, much less impending fleet order, capital, nor future growth plans, to survive on its own without the feed and benefits obtained from global alliance membership.
Furthermore, the likelihood of TAM joining SkyTeam was very slim, given that its merger partner, LAN, is very well-entrenched in OneWorld.
The situation is a bit more fragmented among global carriers operating flights between Brasil and North America and Europe (there are currently no carriers providing nonstop service from Brasil to Oceania). Nevertheless, TAM will indeed bring OneWorld valuable market presence that the alliance currently lacks. Once TAM becomes an official member, OneWorld will dominate 52% of the Brasil-North America market and 35% of the Brasil-Europe market.*
TAM’s departure from Star will likely coincide within the same time frame as its switch to OneWorld in early 2014. Regional subsidiary carrier, TAM Paraguay, will also be joining as a OneWorld affiliate.
It is going to be a tough loss for Star Alliance given the size and importance of the Brasilian market, of which TAM dominates 32.5% of the overall share. Star may also expect another major loss in the upcoming years if the American Airlines – US Airways merger receives US DOT Regulatory approval, as US Airways is currently a Star Alliance member.
However, it is a huge boon for OneWorld, who will be also seeing Qatar Airways join the alliance later this year.
*Statistics obtained by CAPA/Innovata: www.centreforaviation.com