© 2009 Sabre Inc. All rights reserved. wearelistening@sabre.com

2004 Issue No. 2A MAGAZINE FOR AIRLINE EXECUTIVES

T a k i n g y o u r a i r l i n e t o n e w h e i g h t s

Air France and KLM formEurope’s Largest Airline

The Evolution of Alliances

A Conversation withoneworld, SkyTeamand Star Alliance

4

18

26

I N S I D E

A N A L L I E D F R O N TA conversation with …

Geoff Dixon, CEO,Qantas Airways

Few would argue that forming an allianceamong airlines is the future of the indus-

try — alliances enable airlines to protect them-selves in a highly volatile climate, where theeconomy is unstable and competition is high.They are also a way to increase revenue.

In Latin America, the trends towardconsolidation and alliances are consistentwith those in Europe and North America.However, they have been developing at aslower rate and with a different emphasis,focusing on building traffic from otherregions as well as leveraging the strength ofthe region’s flag carriers, which have strongties with local governments. Also, somealliances have had better chances to succeedthan others — those with common/sharedgoals in which the partners complement eachother and are willing to work productivelywith each other.

The Latin American Airline Market

Latin America is a growing marketplace. Theregion’s gross national product is increasing,resulting in air travel growing at a constantrate, particularly in markets such as CentralAmerica, Argentina, Chile and Colombia.Today, Latin American countries are consid-ered to be among the fastest growing mar-kets. Tourism between the United States andLatin America and within the region is increas-ing at a rapid rate.

At the same time, leadership has shifted while the market is increasing: NorthAmerican and European carriers such as AirCanada, Iberia Líneas Aéreas de España,American Airlines, Lufthansa GermanAirlines, Continental Airlines and Air Franceare taking advantage of the increase indemand to open new routes to Central andLatin America, where fares and correspond-ing yields are significantly higher, and growtheir market share. Today, European carriers

hold four of the top five market share posi-tions in Latin America, where trans-Atlanticnon-stop capacity has almost doubled duringthe last 10 years.

When it comes to regulation, thedevelopment of open skies agreements hasresulted in Latin America experiencing glob-alization. This has allowed some existing carriers to expand. In addition, the multiplica-tion of alliances between a North and South American carrier is continuing to cre-ate even more pressure on governments inthe region to sign open skies bilateral agree-ments with the United States. The resultsare rewarding: Costa Rica, Chile and ElSalvador are examples of how open skiesagreements have benefited airlines and pas-sengers by allowing carriers such as TACA tobuild a regional network and, in the case ofLAN, earn record profits.

However, there are still some chal-lenges to overcome:

Latin America remains very nationalistic andis characterized by a patchwork of aviationagreements that considerably limit the busi-ness development of its airlines. In fact, theoutdated regulatory systems do more togenerate income for the government thandeveloping airlines. Latin American carriers, which are small andmedium sized, are plagued by high costsand low efficiencies. Therefore, despite thegrowing traffic, Latin America is still experi-encing economical crises and financial diffi-culties. This is evidenced by the economicfleet-size reduction among Latin Americancarriers and the fact that economic turmoiland high jet fuel costs have caused airlinesto struggle to survive. At the same time, pressure is building forairlines to improve safety systems and thequality of service that is expected by globaltravelers.

As these issues are considerable,alliance and consolidation strategies are topicsof critical importance. They are viewed as away to gain strength and survive globalization.

1,600 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

1,400 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

1,200 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

1,000 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

800 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

600 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

400 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

200 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

0 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Airline

Additional markets served with regional codeshares

Additional markets served with north/south codeshares

Additional markets served with alliance partner codeshares

Additional markets served alone

Sources: market information data tapes,Sabre ® Planet ® profitability forecasting system

Such actions can leave a passengerwondering about the quality of service on air-lines in the alliance and questioning whetherto use the alliance in the future for global travel.

Although an extreme example, it illus-trates the potential cultural differencesbetween alliance members with respect tocustomer service. Alliances should bealigned so that alliance partners support cus-tomers of all member airlines with the samelevel of service.

Keys to solving these issues requireappropriate access to information and clearcommunication within the individual airline,among partners and, most importantly, withthe customer.

In order to reap the benefits of thealliance, all airlines must focus on providing ahigh level of customer service. When joiningan alliance, airlines should consider:

The partners’ customer relationship man-agement capabilities,The customer service philosophies amongpartners,The volume and type of customer com-plaints for each partner, at least at a highlevel,Whether there is a plan to provide solutionsto common customer service issues andthe resulting customer complaints.

With the right customer service policiesand practices in place, customers flyingalliance carriers should receive a consistentlevel of service and experience seamless travel as they move from one partner to the next.

Stan Boyer is a line of businessdirector for Sabre Airline SolutionsConsulting. He can be contacted at

stan.boyer@sabre.com.

a

industry

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industry

ascend

Linking Latin America

By Marcela Lizárraga and Nadja Killisly | Ascend Contributors

As with most parts of the world, alliances are becoming more prominentand more important in Latin America. However, the region’s alliances aretaking some unique forms to adapt to the local landscape.

13

Codeshare Market Reach

for July 2004

AM CM LA MX RG TA

Ma

rke

ts s

erv

ed

Alliances have provided benefits to

a number of Latin American carriers.

COPA and TACA have highly benefited

from their respective alliances with

Continental and American Airlines.

LAN and Aeroméxico have increased

the number of markets they serve

through the development of numerous

regional codeshare partnerships.

+count it up

The VIP Treatment | Continued from page 10

alliance partners or handling agents, prior to departure to ensure accuratestatus recognition and mileage accrual. This will also assist the check-inagent in matching the passenger’s airline status level with the correspondinglevel of the alliance as a whole.

If the appropriate information is gathered initially during the bookingprocess, all airlines can proactively act upon a traveler’s elite status. If airlineswait until an elite passenger has displayed a membership card, they havemissed an opportunity to provide high-quality customer service.

Some GDSs, such as the Sabre ® global distribution system, store pro-files of an airline’s frequent flyer members, which can help airlines thatdepend on sales from agents who use a particular GDS. Regularly providingthe member’s travel agency of record or the GDS with updated memberinformation can help ensure that frequent flyers automatically receive theappropriate mileage credits. This also helps ensure that the name andaccount number of a frequent flyer will match the airline’s records when areservation is made by an agent utilizing a GDS that stores frequent flyerinformation. The status level, however, must still be added to the PNR by theairline’s system.

Coordination of processes and systems will also eliminate issues suchas passengers trying to “double dip” by accruing miles in more than one pro-gram for a single trip. To prevent such abuse, airlines should have a copy orreceipt of the ticket sold to the customer and a copy of the boarding passprior to retroactively awarding credit. It is important to verify flight activity,especially if supporting documentation is not available.

Equally important is ensuring that passengers do not inadvertentlyreceive credit for flights that were booked but not flown. Preventing unearnedcredits being granted becomes complicated in networks that depend on otherairlines’ handling agents. In such instances, receiving an accurate flight close-out report will facilitate the updating of PNRs prior to the start of the mileageaccrual process.

Joining an alliance opens up a new world of frequent flyermileage/point redemption opportunities, but only if the member airlines havetightly coordinated processes, procedures and systems that allow them toproperly identify and care for their most valuable customers.

Nico Stoman is a senior management consultant with Sabre AirlineSolutions Consulting. He can be reached at nico.stoman@sabre.com.

2006 — Year the world's

largest passenger jet, the Airbus

A380, will begin operations from

Australia's Melbourne Airport,

which will begin a multi-million-

dollar infrastructure development

in preparation for the double-

decker, 550-seat aircraft.

250,437 — Number of

U.S. dollars, mostly in loose change,

that was left by passengers at airport

security checkpoints during the last

year. The money is collected by

the U.S. Transportation Security

Administration and deposited into

the federal government's general fund.

10,335 — Distance in miles

of the world's longest commercial

flight, which is served by Singapore

Airlines. The 18-and-a-half-hour

inaugural flight between Singapore

and New York City, New York,

carried 181 passengers earlier

this year.

Proliferation of Alliances and

Consolidation in Latin America

Consolidation in the region began with TACA’shighly successful mergers, which resulted inone of the best networks in Latin America.Since TACA began its consolidation program,the number of similar efforts has been increas-ing continuously. Currently, alliances can befound from Mexico to the southernmostpoints of Latin America. Although they takevarious forms, they are mainly driven by the

necessity to head off competition, createeconomies of scale, and increase revenue byexpanding their presence and market share inother regions.

U.S. and European carriers’ expansionin the market has forced Latin American car-riers to focus not only on the cost side butalso on the revenue side. Developing a moreattractive network with U.S. carriers andoffering better customer service has allowedLatin American carriers to become more

competitive, particularly those based incountries that are too small to provide a suf-ficient market to survive.

Although numerous alliances existtoday in the region, they can be categorized intwo ways: geographic (global, regional or inter-regional) or by the level of equity interest.

Global Alliances

A global alliance enables Latin American carri-ers to expand in other continents.Aeroméxico, for example, has been able tooffer routes to France and Italy as a result ofits relationship with Air France and Alitalia. Asof today, only LAN (oneworld), VARIG (StarAlliance) and Aeroméxico (SkyTeam) havejoined this type of alliance, which still does notextensively cover Latin American countries.However, depending on their partners, thesealliances cover a specific region. Star Alliance,for example, covers Brazil extensively throughits member airline VARIG.

The benefits recognized by LatinAmerican carriers when joining a globalalliance include:

Acquisition of world-class experience fromalliance partners,Ability to offer a more comprehensive rangeof services and programs (i.e. lounges),Improved branding,Expansion of the network in a cost-effec-tive manner,Impetus to bring operation to a world-classstandard.

North-South Alliances

One trend in the region has been the develop-ment of north-south alliances — COPA andContinental Airlines, Delta Air Lines andAeroméxico, TACA and American Airlines. Theresults of the alliances are varied. On onehand, they open additional gateways in theUnited States and improve Latin America mar-ket presence there; on the other hand, manyNorth American carriers have been attractedto Latin America because of its growth poten-tial, which could lead to further competition inthe home markets of the region’s carriers.

Despite the fact that COPA, TACA andAeroméxico have been successful with thistype of alliance, other airlines see limitations.Some believe this trend could create tensionamong global alliance members becausethey may compete for the same customersin Latin America.

Some carriers also fear the dominanceof the large North American carriers andbelieve that this type of alliance benefits the

industry

ascend14

North American carrier more than its smallerLatin American counterpart, which, theybelieve, would be on more equal footing withEuropean carriers.

Regional Alliances

Latin America is exemplified by the numerousregional alliances that have been developed bysmall, successful airlines that are strong intheir home country, such as LAN.

Regional alliances allow area carriers to:Compete at the regional level and through-out Latin America, Provide services to smaller markets,Reach cities that cannot be served with aspecific fleet type, Increase network reach.

The success of this type of alliance canbe explained by the fact that markets are smalland carriers need to expand regionally in order to

grow. TACA, for example, formed a codesharealliance with Avianca to take advantage of theincreased traffic between Central America andColombia. However, not every country has thesize to have regional alliances and may find itmore difficult to overcome the economic burden.

Alliances by Equity

Finally, as nowhere else, the history ofalliances in Latin America is characterized by

industry

ascend 15

Most of the leading European carriers that provide service to Latin America increased their available seat miles to the region during the

last six years; therefore, they profited largely from the traffic increase and open skies agreement. Latin American carriers are loosing their

leadership in this market.

3,000 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

2,500 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

2,000 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

1,500 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

1,000 --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

500 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

0 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Carrier

2Q1996 2Q2000 2Q2004

Non-Stop ASMs for Top Carriers Between Europe and Latin America

AS

Ms (

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n)

Co

nd

or

Air E

uro

pa

Sw

iss

LA

N

TA

M

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TA

P A

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ortu

ga

l

Alita

lia

Britis

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ys

Aero

lineas

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en

tinas

KL

M

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ftha

nsa

Air F

ran

ce

VA

RIG

Ibe

ria

5,000 --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

4,500 --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

4,000 --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

3,500 --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

3,000 --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

2,500 --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

2,000 --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

1,500 --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

1,000 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

500 --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

0 --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Carrier

2Q1996 2Q2000 2Q2004

Non-Stop ASMs for Top Carriers Between North America and Latin America

AS

Ms (

mil

lio

n)

Air C

an

ad

a

Am

eric

a W

est

La

csa

TA

M

Ala

sk

a

Airlin

es

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lineas

Arg

en

tinas

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N

TA

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De

lta

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rom

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ico

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a

Un

ited

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tal

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an

A comparison of the available seat miles performed in 2003 for non-stop segments

between North American and Latin American carriers demonstrate that North American

carriers (American, Continental, United and Delta) hold four of the seven top positions,

which allowed them to increase their market share in the region.

16,000 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

14,000 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

12,000 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

10,000 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

8,000 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

6,000 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

4,000 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

2,000 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

0 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Carrier

2003 Non-Stop ASMs Per Carrier Between North America and Latin America

AS

Ms (

mil

lio

n)

Lan

Peru

No

rthw

est

ATA

CO

PA

US

Airw

ay

s

LA

CS

A

Air C

an

ad

a

Am

eric

a W

est

TA

M

VA

RIG

LA

N

TA

CA

Aro

em

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ico

Delta

Un

ited

Me

xic

an

a

Am

eric

an

A comparison of the available seat miles performed in 2003 for non-stop segments

between European and Latin American carriers demonstrate that European carriers (Iberia,

Air France, Lufthansa, KLM and TAP Air Portugal) hold four of the top five, five of the top

seven and seven of the top 10 positions.

10,000 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

9,000 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

8,000 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

7,000 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

6,000 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

5,000 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

4,000 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

3,000 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

2,000 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

1,000 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

0 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Carrier

2003 Non-Stop ASMs Per Carrier Between Europe and Latin America

AS

Ms (

mil

lio

n)

La

ud

a A

ir

LA

N

Air E

uro

pa

Sw

iss

TA

M

Aero

méxic

o

Britis

h A

irwa

ys

Alita

lia

TA

P A

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ortu

ga

l

Aero

lineas

Arg

en

tina

s

KL

M

Lu

ftha

nsa

VA

RIG

Air F

ran

ce

Iberia

The trend varies for non-stop available seat miles between North America and Latin America. For example, for Latin America-based carriers

such as TACA and Mexicana, ASMs increased. American Airlines maintained its market share gained during the last eight years. Some

United States-based carriers such as United and Continental showed a decrease in the last year.

Ae

orlin

ea

sA

rge

ntin

as

Proliferation of Alliances and

Consolidation in Latin America

Consolidation in the region began with TACA’shighly successful mergers, which resulted inone of the best networks in Latin America.Since TACA began its consolidation program,the number of similar efforts has been increas-ing continuously. Currently, alliances can befound from Mexico to the southernmostpoints of Latin America. Although they takevarious forms, they are mainly driven by the

necessity to head off competition, createeconomies of scale, and increase revenue byexpanding their presence and market share inother regions.

U.S. and European carriers’ expansionin the market has forced Latin American car-riers to focus not only on the cost side butalso on the revenue side. Developing a moreattractive network with U.S. carriers andoffering better customer service has allowedLatin American carriers to become more

competitive, particularly those based incountries that are too small to provide a suf-ficient market to survive.

Although numerous alliances existtoday in the region, they can be categorized intwo ways: geographic (global, regional or inter-regional) or by the level of equity interest.

Global Alliances

A global alliance enables Latin American carri-ers to expand in other continents.Aeroméxico, for example, has been able tooffer routes to France and Italy as a result ofits relationship with Air France and Alitalia. Asof today, only LAN (oneworld), VARIG (StarAlliance) and Aeroméxico (SkyTeam) havejoined this type of alliance, which still does notextensively cover Latin American countries.However, depending on their partners, thesealliances cover a specific region. Star Alliance,for example, covers Brazil extensively throughits member airline VARIG.

The benefits recognized by LatinAmerican carriers when joining a globalalliance include:

Acquisition of world-class experience fromalliance partners,Ability to offer a more comprehensive rangeof services and programs (i.e. lounges),Improved branding,Expansion of the network in a cost-effec-tive manner,Impetus to bring operation to a world-classstandard.

North-South Alliances

One trend in the region has been the develop-ment of north-south alliances — COPA andContinental Airlines, Delta Air Lines andAeroméxico, TACA and American Airlines. Theresults of the alliances are varied. On onehand, they open additional gateways in theUnited States and improve Latin America mar-ket presence there; on the other hand, manyNorth American carriers have been attractedto Latin America because of its growth poten-tial, which could lead to further competition inthe home markets of the region’s carriers.

Despite the fact that COPA, TACA andAeroméxico have been successful with thistype of alliance, other airlines see limitations.Some believe this trend could create tensionamong global alliance members becausethey may compete for the same customersin Latin America.

Some carriers also fear the dominanceof the large North American carriers andbelieve that this type of alliance benefits the

industry

ascend14

North American carrier more than its smallerLatin American counterpart, which, theybelieve, would be on more equal footing withEuropean carriers.

Regional Alliances

Latin America is exemplified by the numerousregional alliances that have been developed bysmall, successful airlines that are strong intheir home country, such as LAN.

Regional alliances allow area carriers to:Compete at the regional level and through-out Latin America, Provide services to smaller markets,Reach cities that cannot be served with aspecific fleet type, Increase network reach.

The success of this type of alliance canbe explained by the fact that markets are smalland carriers need to expand regionally in order to

grow. TACA, for example, formed a codesharealliance with Avianca to take advantage of theincreased traffic between Central America andColombia. However, not every country has thesize to have regional alliances and may find itmore difficult to overcome the economic burden.

Alliances by Equity

Finally, as nowhere else, the history ofalliances in Latin America is characterized by

industry

ascend 15

Most of the leading European carriers that provide service to Latin America increased their available seat miles to the region during the

last six years; therefore, they profited largely from the traffic increase and open skies agreement. Latin American carriers are loosing their

leadership in this market.

3,000 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

2,500 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

2,000 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

1,500 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

1,000 --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

500 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

0 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Carrier

2Q1996 2Q2000 2Q2004

Non-Stop ASMs for Top Carriers Between Europe and Latin America

AS

Ms (

mil

lio

n)

Co

nd

or

Air E

uro

pa

Sw

iss

LA

N

TA

M

Aero

méxic

o

TA

P A

irP

ortu

ga

l

Alita

lia

Britis

hA

irwa

ys

Aero

lineas

Arg

en

tinas

KL

M

Lu

ftha

nsa

Air F

ran

ce

VA

RIG

Ibe

ria

5,000 --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

4,500 --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

4,000 --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

3,500 --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

3,000 --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

2,500 --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

2,000 --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

1,500 --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

1,000 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

500 --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

0 --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Carrier

2Q1996 2Q2000 2Q2004

Non-Stop ASMs for Top Carriers Between North America and Latin America

AS

Ms (

mil

lio

n)

Air C

an

ad

a

Am

eric

a W

est

La

csa

TA

M

Ala

sk

a

Airlin

es

Aero

lineas

Arg

en

tinas

LA

N

TA

CA

De

lta

Ae

rom

éx

ico

VA

RIG

Me

xic

an

a

Un

ited

Co

ntin

en

tal

Am

eric

an

A comparison of the available seat miles performed in 2003 for non-stop segments

between North American and Latin American carriers demonstrate that North American

carriers (American, Continental, United and Delta) hold four of the seven top positions,

which allowed them to increase their market share in the region.

16,000 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

14,000 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

12,000 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

10,000 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

8,000 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

6,000 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

4,000 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

2,000 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

0 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Carrier

2003 Non-Stop ASMs Per Carrier Between North America and Latin America

AS

Ms (

mil

lio

n)

Lan

Peru

No

rthw

est

ATA

CO

PA

US

Airw

ay

s

LA

CS

A

Air C

an

ad

a

Am

eric

a W

est

TA

M

VA

RIG

LA

N

TA

CA

Aro

em

éx

ico

Delta

Un

ited

Me

xic

an

a

Am

eric

an

A comparison of the available seat miles performed in 2003 for non-stop segments

between European and Latin American carriers demonstrate that European carriers (Iberia,

Air France, Lufthansa, KLM and TAP Air Portugal) hold four of the top five, five of the top

seven and seven of the top 10 positions.

10,000 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

9,000 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

8,000 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

7,000 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

6,000 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

5,000 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

4,000 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

3,000 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

2,000 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

1,000 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

0 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Carrier

2003 Non-Stop ASMs Per Carrier Between Europe and Latin America

AS

Ms (

mil

lio

n)

La

ud

a A

ir

LA

N

Air E

uro

pa

Sw

iss

TA

M

Aero

méxic

o

Britis

h A

irwa

ys

Alita

lia

TA

P A

irP

ortu

ga

l

Aero

lineas

Arg

en

tina

s

KL

M

Lu

ftha

nsa

VA

RIG

Air F

ran

ce

Iberia

The trend varies for non-stop available seat miles between North America and Latin America. For example, for Latin America-based carriers

such as TACA and Mexicana, ASMs increased. American Airlines maintained its market share gained during the last eight years. Some

United States-based carriers such as United and Continental showed a decrease in the last year.

Ae

orlin

ea

sA

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ntin

as

airlines acquiring an equity stake in anothercarrier. LAN, formerly LanChile, started itsexpansion by acquiring almost 57 percent ofLadeco and then merging with Fast Air in1998. Over the course of the next few years,the airline established subsidiaries in Peru,Ecuador and the Dominican Republic.

TACA — by acquiring an equity positionand management control of Aviateca in Guatemala,TACA de Honduras in Honduras, NICA inNicaragua and LACSA in Costa Rica — formedone airline under centralized management. In sodoing, it not only became a regional conglomerate

but also built one of the best networks inCentral America, achieving economies of scale.

Other airlines in the region have alsopursued alliances by acquiring a stake in fellowcarriers. Colombian carrier Avianca resultedfrom a merger of SCADTA and Servicio AeroColombiano. COPA believed that an equityalliance would enable it to move from a smalldomestic airline into a regional hub-and-spokecarrier. Today, 49 percent of COPA is ownedby U.S.-based Continental Airlines and has oneof the region’s more successful hubs. SmallBrazilian-based carrier Ocean Air is looking to

expand its regional network via equity alliance.And Aeropostal has equity in Aerorepublicaand Caribiana.

The announcement in May by a Brazilianinvestor of plans to purchase Avianca confirmsthe region’s growing trend of weaker airlinesconsolidating with larger, more stable carriersin order to grow and survive.

Lessons Learned

The experience of several Latin American car-riers regarding alliances in the region has pro-vided several lessons:

Alliances Bring Benefits

Many carriers believe that alliances providesubstantial benefits in terms of increasing theability to compete at a regional or continentallevel by extending their networks.

During the past several years, allianceshave been developed with various degrees ofsuccess. The region’s most successful havebeen LAN, TACA and COPA:

COPA went from a domestic carrier to asuccessful regional hub operation.TACA’s early move not only resulted in theairline becoming a strong competitor butalso positioned it ahead of the curve in theregion before U.S. carriers began to enterthe market. LAN has become one of Latin America’smost successful airlines.

Clear Goals and Objectives

Alliance partners must not only share a strate-gy and a vision but also common goals and anunderstanding of how they can complementeach other through the partnership.

“Probably the main reason of the suc-cess is that everybody worked toward the goalof being one single carrier in many aspects,”said Guillermo Bran, alliance and interline man-ager at TACA.

COPA is a clear best-practice example.From the beginning, COPA and Continentalshared a vision of establishing hubs in CentralAmerica. Today, Panama is seamlessly connect-ed to Houston, Texas, the Continental gatewayto 31 cities in 20 countries in Latin America.

Alliance Resource Allocation

Alliance relationships are complex. They bringprofit opportunities but also losses if not man-aged correctly. For larger airlines, a carrier needsto have a planning and negotiating team dedicat-ed to managing the process and keeping effortsproductive. Smaller airlines must also takeadvantage of the tools and methodologies usedby larger airlines to simulate the increase in traf-fic that will be gained from the alliance.

TACA’s planning department has run rig-orous financial and market analysis during thecreation phase of the alliance. “We do ananalysis based on different options that arepresent at the current time,” Bran said. “Wethen run financial analysis based on connectiv-ity and market sizes.”

Proactivity

Once airlines have selected their partners,they should actively manage the direction andprocess of the alliance.

“In most cases, Latin American airlinesneed to proactively approach the alliance topresent the case on how there is a mutualbenefit if their airline gets to participate in thatalliance,” said Alfonso Acosta, director ofregional alliances at Mexicana. “Only in a fewcases, the airline will be approached by otherdomestic or regional carriers to develop a part-nership, and in fact, some smaller airlines inthe region do not have a lot of visibility.”

That principle was applied byAeroméxico, which took an active role indeveloping its alliances.

“Aeroméxico, along with Air France and Delta, was a founding member ofSkyTeam and actively works toward the devel-opment and growth of the alliance,” saidNicolas Rhoads, director airline strategy forAeroméxico.

Preferred Models

If the emphasis has been on north-southalliances, more thought is given today to inter-regional alliances, which are seen as the pre-ferred model because of more common politi-cal and economical alignment.

Also, many airlines see equity alliancesbetween Latin American airlines as preferableto the so-called vertical alliance between U.S.and Latin American carriers because they mayrelegate Latin American partners to a sec-ondary role.

Role of Information Technology

IT plays a key role in alliances, including:Providing a seamless experience to the trav-eler when IT is properly integrated,Leveraging IT knowledge and skills amongpartners,Integrating required IT processes, such as incodeshare, commercial, and frequent flyerinteractions and agreements.

Perceived Risks of an Alliance

In addition to the lessons learned, LatinAmerican carriers also recognize a number ofperceived risks when engaging in alliances,such as:

Disagreement among partners,Uneven distribution of revenue sharing andbenefits,Adverse reaction from local governments,Less ability to react to market changes, Less flexibility in managing individual objec-tives and standards, Dilution of the small player in the alliance,Discrepancies in terms of sharing objectives,

Cultural and political differences.Global alliances also include risks:

Exorbitant expense due to IT commonalityrequirements,High cost of participation to fulfill globalalliance standards,The dominance of stronger carriers,Less flexibility in meeting individual objec-tives and standards.

Next Steps

Latin American carriers value the benefitsalliances offer to both the airline and the pas-senger. The region has begun to see openskies agreements signed, and the initialresults provide an indication of the substan-tial benefits they might offer throughout theentire region if it continues to embrace liber-alization. However, some key steps musttake place in order to achieve full potential,such as:

Modernize Latin America’s regional aviationinfrastructure and update its regulatory sys-tems,Embrace alliances as a way to gain accessto lucrative routes to the United States andEurope, Improve management of the partnership.

For partners that already have a part-nership, the challenge is to make it strongerand manage risks. For those that do not yethave an alliance partner, the challenge is toquickly find the right type of alliance. The keysuccess factors include professional man-agement of the process, clear goals andproactive management.

Trends point toward continued consol-idation. Many airlines believe there will be a series of consolidations and alliancesformed during the next few years, leavingthe market dominated by only two or threecarriers, with small carriers focusing onniche markets.

Alliances will also impact markettrends, changing the rules so that competitionmay now be between alliances rather thanairlines alone.

Marcela Lizárraga is vice president of LatinAmerican sales and account management

and Nadja Killisly is a consulting partnerfor Latin America with Sabre AirlineSolutions. They can be contacted at

marcela.lizarraga@sabre.com andnadja.killisly@sabre.com.

a

industry

ascend 17

industry

ascend16

TAM

TACA

LAN

VARIG

COPA

Aeroméxico

Aeropostal

Mexicana

Avianca

Aerolineas Argentinas

GOL

LAB

Equity alliances

TAM Mercosul 80% share in Transportes Aereos del Mercosul of Paraguay

TACA has equity stakes in TACA (49%), LACSA(10%), AVIATECA (30%) and NICA (49%)

LAN 73.3% share in Aerolinhas Brasileiras, 100%in LanDominicana, 70% in LanPeru, 25% in Florida West International Airways, 45% inLanEcuador, 25% in MAS Air (Mexico)

99% in Nordeste Linhas Aereas Regionais, 97% in Rio Sul Servicos Aereos Regionais, 49% in PLUNA

49% owned by Continental Airlines, 51% by Mota family

Belongs to CINTRA along with Mexicana, Aeroperuand several regional carriers within Mexico

Equity in Aerocontinente, 33% stake inAeroRepublica (Colombia) and a 45% stake in Sol Air (Honduras)

CINTRA 99.95%

94% of SAM Colombia — Owned by FederaciónNacional de Cafeteros 50%, Grupos Valores Bavaria (43.73%), Helicol (4.77%) and InversionesFenecia (6.14%)

92% owned by Grupo Marsans of Spain, 3%employees, 5% government of Argentina

Has stakes held by American International Group (12.5%), Grupo Aurea (87.5%)

48.27% owned by the Bolivian government and50% by a private investor

Regional

Yes

Yes

Yes

Yes

North-South

American Airlines

American Airlines

American Airlines

Continental Airlines

Delta Air Lines

Delta Air Lines

Global Alliances

oneworld

Star Alliance

SkyTeam

Codeshare and inter-regional alliances

Air France, American Airlines, KLM, TAM Mercosul, VARIG, Uair

American Airlines and Air France

Aeroméxico, Alaska Airlines, American Eagle, British Airways, Iberia,LanExpress, LanPeru, TAM Mercosul, Qantas Airways, Florida WestInternational Airways

Air Canada, Alitalia, Aserca Airlines, Mexicana, PLUNA, South African Airways,Spanair, TAM

Commercial with Lufthansa, Aerosur, South African Airways, United Airlines,Nordeste Linhas Aereas Regionais. Codeshare with Cubana de Aviacion (Havana-Panama), Gulfstream International (Florida, Carribean, Bahamas),Mexicana (Mexico-Panama City, Cancun-Panama City), TACA

Air France, Alitalia, CSA Czech Airlines, Delta Air Lines, Japan Airlines , TACA, Korean Air, Atlantic Southeast Airlines (Atlanta-Mexico City, Monterrey and on 14 flights from Dallas/Forth Worth), Continental Airlines (United Statesand Mexico), Aeromar (within Mexico), LAN (Mexico City-Santiago), Mexicana(numerous markets within Mexico, and Mexico City-Santiago and Mexico City-Guadalajara and Mexico City-Oakland), TACA (Mexico City-Lima)

Codeshare with Cubana de Aviacion and Air Europa

Air New Zealand, All Nippon Airways, Iberia, Lufthansa, Scandinavian AirlinesSystem, American Airlines, VARIG, Air Canada , Aeromar and Aeroméxico (within Mexico), Avianca (Mexico City-Bogota), COPA (Mexico City-Panama,Cancun-Panama), commercial agreement with Austrian and Asiana

Codeshares with ACES, Delta Air Lines, LACSA (Guatemala, San Jose and San Salvador to Bogota, Cali and Medallin), Mexicana (Mexico City-Bogota),TACA (Colombia-Central America)

No alliances/codeshares except that Austral Lineas Aereas and AerolineasArgentinas operate as one airline, commercial agreement with Aerosur, Austra Lineas Aereas, Iberia

LAB codeshares with TACA Peru (Santa Cruz-Panama, Mexico City-La Paz) and with TAME Linea Aerea del Ecuador (Quito-Lima, La Paz-Lima)

Alliance Status in Latin America

airlines acquiring an equity stake in anothercarrier. LAN, formerly LanChile, started itsexpansion by acquiring almost 57 percent ofLadeco and then merging with Fast Air in1998. Over the course of the next few years,the airline established subsidiaries in Peru,Ecuador and the Dominican Republic.

TACA — by acquiring an equity positionand management control of Aviateca in Guatemala,TACA de Honduras in Honduras, NICA inNicaragua and LACSA in Costa Rica — formedone airline under centralized management. In sodoing, it not only became a regional conglomerate

but also built one of the best networks inCentral America, achieving economies of scale.

Other airlines in the region have alsopursued alliances by acquiring a stake in fellowcarriers. Colombian carrier Avianca resultedfrom a merger of SCADTA and Servicio AeroColombiano. COPA believed that an equityalliance would enable it to move from a smalldomestic airline into a regional hub-and-spokecarrier. Today, 49 percent of COPA is ownedby U.S.-based Continental Airlines and has oneof the region’s more successful hubs. SmallBrazilian-based carrier Ocean Air is looking to

expand its regional network via equity alliance.And Aeropostal has equity in Aerorepublicaand Caribiana.

The announcement in May by a Brazilianinvestor of plans to purchase Avianca confirmsthe region’s growing trend of weaker airlinesconsolidating with larger, more stable carriersin order to grow and survive.

Lessons Learned

The experience of several Latin American car-riers regarding alliances in the region has pro-vided several lessons:

Alliances Bring Benefits

Many carriers believe that alliances providesubstantial benefits in terms of increasing theability to compete at a regional or continentallevel by extending their networks.

During the past several years, allianceshave been developed with various degrees ofsuccess. The region’s most successful havebeen LAN, TACA and COPA:

COPA went from a domestic carrier to asuccessful regional hub operation.TACA’s early move not only resulted in theairline becoming a strong competitor butalso positioned it ahead of the curve in theregion before U.S. carriers began to enterthe market. LAN has become one of Latin America’smost successful airlines.

Clear Goals and Objectives

Alliance partners must not only share a strate-gy and a vision but also common goals and anunderstanding of how they can complementeach other through the partnership.

“Probably the main reason of the suc-cess is that everybody worked toward the goalof being one single carrier in many aspects,”said Guillermo Bran, alliance and interline man-ager at TACA.

COPA is a clear best-practice example.From the beginning, COPA and Continentalshared a vision of establishing hubs in CentralAmerica. Today, Panama is seamlessly connect-ed to Houston, Texas, the Continental gatewayto 31 cities in 20 countries in Latin America.

Alliance Resource Allocation

Alliance relationships are complex. They bringprofit opportunities but also losses if not man-aged correctly. For larger airlines, a carrier needsto have a planning and negotiating team dedicat-ed to managing the process and keeping effortsproductive. Smaller airlines must also takeadvantage of the tools and methodologies usedby larger airlines to simulate the increase in traf-fic that will be gained from the alliance.

TACA’s planning department has run rig-orous financial and market analysis during thecreation phase of the alliance. “We do ananalysis based on different options that arepresent at the current time,” Bran said. “Wethen run financial analysis based on connectiv-ity and market sizes.”

Proactivity

Once airlines have selected their partners,they should actively manage the direction andprocess of the alliance.

“In most cases, Latin American airlinesneed to proactively approach the alliance topresent the case on how there is a mutualbenefit if their airline gets to participate in thatalliance,” said Alfonso Acosta, director ofregional alliances at Mexicana. “Only in a fewcases, the airline will be approached by otherdomestic or regional carriers to develop a part-nership, and in fact, some smaller airlines inthe region do not have a lot of visibility.”

That principle was applied byAeroméxico, which took an active role indeveloping its alliances.

“Aeroméxico, along with Air France and Delta, was a founding member ofSkyTeam and actively works toward the devel-opment and growth of the alliance,” saidNicolas Rhoads, director airline strategy forAeroméxico.

Preferred Models

If the emphasis has been on north-southalliances, more thought is given today to inter-regional alliances, which are seen as the pre-ferred model because of more common politi-cal and economical alignment.

Also, many airlines see equity alliancesbetween Latin American airlines as preferableto the so-called vertical alliance between U.S.and Latin American carriers because they mayrelegate Latin American partners to a sec-ondary role.

Role of Information Technology

IT plays a key role in alliances, including:Providing a seamless experience to the trav-eler when IT is properly integrated,Leveraging IT knowledge and skills amongpartners,Integrating required IT processes, such as incodeshare, commercial, and frequent flyerinteractions and agreements.

Perceived Risks of an Alliance

In addition to the lessons learned, LatinAmerican carriers also recognize a number ofperceived risks when engaging in alliances,such as:

Disagreement among partners,Uneven distribution of revenue sharing andbenefits,Adverse reaction from local governments,Less ability to react to market changes, Less flexibility in managing individual objec-tives and standards, Dilution of the small player in the alliance,Discrepancies in terms of sharing objectives,

Cultural and political differences.Global alliances also include risks:

Exorbitant expense due to IT commonalityrequirements,High cost of participation to fulfill globalalliance standards,The dominance of stronger carriers,Less flexibility in meeting individual objec-tives and standards.

Next Steps

Latin American carriers value the benefitsalliances offer to both the airline and the pas-senger. The region has begun to see openskies agreements signed, and the initialresults provide an indication of the substan-tial benefits they might offer throughout theentire region if it continues to embrace liber-alization. However, some key steps musttake place in order to achieve full potential,such as:

Modernize Latin America’s regional aviationinfrastructure and update its regulatory sys-tems,Embrace alliances as a way to gain accessto lucrative routes to the United States andEurope, Improve management of the partnership.

For partners that already have a part-nership, the challenge is to make it strongerand manage risks. For those that do not yethave an alliance partner, the challenge is toquickly find the right type of alliance. The keysuccess factors include professional man-agement of the process, clear goals andproactive management.

Trends point toward continued consol-idation. Many airlines believe there will be a series of consolidations and alliancesformed during the next few years, leavingthe market dominated by only two or threecarriers, with small carriers focusing onniche markets.

Alliances will also impact markettrends, changing the rules so that competitionmay now be between alliances rather thanairlines alone.

Marcela Lizárraga is vice president of LatinAmerican sales and account management

and Nadja Killisly is a consulting partnerfor Latin America with Sabre AirlineSolutions. They can be contacted at

marcela.lizarraga@sabre.com andnadja.killisly@sabre.com.

a

industry

ascend 17

industry

ascend16

TAM

TACA

LAN

VARIG

COPA

Aeroméxico

Aeropostal

Mexicana

Avianca

Aerolineas Argentinas

GOL

LAB

Equity alliances

TAM Mercosul 80% share in Transportes Aereos del Mercosul of Paraguay

TACA has equity stakes in TACA (49%), LACSA(10%), AVIATECA (30%) and NICA (49%)

LAN 73.3% share in Aerolinhas Brasileiras, 100%in LanDominicana, 70% in LanPeru, 25% in Florida West International Airways, 45% inLanEcuador, 25% in MAS Air (Mexico)

99% in Nordeste Linhas Aereas Regionais, 97% in Rio Sul Servicos Aereos Regionais, 49% in PLUNA

49% owned by Continental Airlines, 51% by Mota family

Belongs to CINTRA along with Mexicana, Aeroperuand several regional carriers within Mexico

Equity in Aerocontinente, 33% stake inAeroRepublica (Colombia) and a 45% stake in Sol Air (Honduras)

CINTRA 99.95%

94% of SAM Colombia — Owned by FederaciónNacional de Cafeteros 50%, Grupos Valores Bavaria (43.73%), Helicol (4.77%) and InversionesFenecia (6.14%)

92% owned by Grupo Marsans of Spain, 3%employees, 5% government of Argentina

Has stakes held by American International Group (12.5%), Grupo Aurea (87.5%)

48.27% owned by the Bolivian government and50% by a private investor

Regional

Yes

Yes

Yes

Yes

North-South

American Airlines

American Airlines

American Airlines

Continental Airlines

Delta Air Lines

Delta Air Lines

Global Alliances

oneworld

Star Alliance

SkyTeam

Codeshare and inter-regional alliances

Air France, American Airlines, KLM, TAM Mercosul, VARIG, Uair

American Airlines and Air France

Aeroméxico, Alaska Airlines, American Eagle, British Airways, Iberia,LanExpress, LanPeru, TAM Mercosul, Qantas Airways, Florida WestInternational Airways

Air Canada, Alitalia, Aserca Airlines, Mexicana, PLUNA, South African Airways,Spanair, TAM

Commercial with Lufthansa, Aerosur, South African Airways, United Airlines,Nordeste Linhas Aereas Regionais. Codeshare with Cubana de Aviacion (Havana-Panama), Gulfstream International (Florida, Carribean, Bahamas),Mexicana (Mexico-Panama City, Cancun-Panama City), TACA

Air France, Alitalia, CSA Czech Airlines, Delta Air Lines, Japan Airlines , TACA, Korean Air, Atlantic Southeast Airlines (Atlanta-Mexico City, Monterrey and on 14 flights from Dallas/Forth Worth), Continental Airlines (United Statesand Mexico), Aeromar (within Mexico), LAN (Mexico City-Santiago), Mexicana(numerous markets within Mexico, and Mexico City-Santiago and Mexico City-Guadalajara and Mexico City-Oakland), TACA (Mexico City-Lima)

Codeshare with Cubana de Aviacion and Air Europa

Air New Zealand, All Nippon Airways, Iberia, Lufthansa, Scandinavian AirlinesSystem, American Airlines, VARIG, Air Canada , Aeromar and Aeroméxico (within Mexico), Avianca (Mexico City-Bogota), COPA (Mexico City-Panama,Cancun-Panama), commercial agreement with Austrian and Asiana

Codeshares with ACES, Delta Air Lines, LACSA (Guatemala, San Jose and San Salvador to Bogota, Cali and Medallin), Mexicana (Mexico City-Bogota),TACA (Colombia-Central America)

No alliances/codeshares except that Austral Lineas Aereas and AerolineasArgentinas operate as one airline, commercial agreement with Aerosur, Austra Lineas Aereas, Iberia

LAB codeshares with TACA Peru (Santa Cruz-Panama, Mexico City-La Paz) and with TAME Linea Aerea del Ecuador (Quito-Lima, La Paz-Lima)

Alliance Status in Latin America