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Differences of opinion between PAL Airlines Sky Airline and against the creation of LATAM

By Ricardo J. Delpiano

Following the decision of the Court of Defense of Free Competition does not agree with the LAN and TAM resources to annul the measure filed by CONADECUS in January, begins a new phase which will require delaying the process in at least one year. In this period, the Competition Tribunal shall hold consultations with each of the parties involved, then analyze and document the final decision which will be key to determining the future of the two airlines and thus the reorganization of the Latin American aviation market players .

Chilean Airlines have expressed with different positions in the scenario created by the merger of LAN and TAM. Photo: S. Blaise

At the moment, LAN has indicated that it will part of the consultation process, providing relevant background, while parallel options to evaluate the possible scenarios. The LAN is initially aimed to ensure that the consultation process is as fast as possible, because the longer you engage in consultations greater the likelihood that third parties are incorporated which increases the uncertainty regarding the future.

Meanwhile the other two airlines (Airline Sky Airlines and PAL) that make up the domestic air market has begun to show respect to the Court's decision on an issue no less for both companies given that both Sky and PAL are in the process expansion in the region, where routes to Brazil are a natural focus of this new phase.

Sky Airline was the first to demonstrate respect to the merger, since last August when LAN and TAM formalized its intentions to join a single company. At that time, its founder and owner Jürgen Paulmann in an interview with Diario El Mercurio (08/17/2010) praised the agreement reached by LAN and TAM in order to merge with the objective of strengthening its global strategy in aviation market increasingly competitive. It stressed that in terms of free competition, the LAN-TAM merger would not affect their interests, as this is geared to international long distance market and not domestic and international market to neighboring countries, main focus is exploiting Sky Airline successfully and allowed it to grow and assert itself as an operator. During the past week, the owner of Sky Airline said in another interview, this time to 16/03/2011- Financial Journal, the accomplishments of your company in a scenario where the Company is established as an aviation giant, showing how a small airline has been able to secure a niche in a market increasingly competitive air.

Meanwhile, after learning of the decision of the Competition Tribunal, PAL Airlines welcomed the resources to benefit not LAN and TAM, as in the opinion of one of the lawyers the airline mitigation measures proposed LATAM future are insufficient as they facilitate the concentration of input supply and Brazilian operators to Chile through LATAM, while Chilean companies can not enter the Brazilian domestic market (El Mercury 3/20/2011). Airlines PAL believes that the creation of LATAM generates an unfavorable scenario under current conditions, preventing a possible future expansion on scheduled flights to Brazil.

Despite being the youngest airlines in Chile, PAL Airlines has also been known position in the domestic and international aviation market, particularly through the operation of markets not served by major airlines, charter flights like where the company is marking a turning point, especially considering the history of the airlines that tried unsuccessfully to enter this segment.

Even before the merger was stopped, LAN-TAM showed significant concessions would be willing to make the union of the two companies was not affected by issues of competition. Among the eight measures that both airlines had an agreement with the National Economic Prosecutor (FNE)-the same one that was ignored by the Competition Tribunal, "were a slot exchange with other operators do not involved in the fusion process so that they can access the routes between Chile and Brazil, as well as one to reduce average prices by 10% after one year of the merger was valid for all tickets purchased in Chile only to and from Brazil, among others.

These points could have been constituted as interesting options for the future and an opportunity for other operators, including the two Chileans who see the Brazilian market as a potential target in its continuing expansion.