[GoonerLondon]

These routes take quite a while to build up. KLM have been flying Lima for years and years.

With the lack of commercial opportunities east (hasn’t ‘taken off’ as expected) – these big jets have to go somewhere.

Air France do seem to make some curious commercial decisions. Im not sure copying them would necessarily be a sound move

[SergeantMajor]

Deleted by Site Administrator

[BusinessBabble]

GL – the AF / KLM strategy is curious indeed, given their string of terrible financial results (lost EUR 2,782M since 2011) I would have thought they’d be better off sorting out their current restructuring than chasing market share. They are the largest carrier Europe to Latam.

[sparkyflier]

BusinesssBabble, I think they are allocating slots and aircraft to South America BECAUSE of their restructing. They are cutting back on some routes, trying to reduce costs and reducing exposure on their main loss – European routes, and South America is where they are finding they can make money and profit.

About the aircraft used being high density and therefore “leisire traffic” only, I do not think that is the case. An old colleague of mine flew to Lima last year on KLM and J was totally full.Aircaft used are a mix of 772, 773, 744, 332 & 340.

Most South American economies are very healthy or indeed booming at present, and so it is a no brainer to try and capture that traffic and cargo.

I do not buy this idea that for South America IB should be the IAG carrier that “does” South America. If there is demand it should be satisfied. KL & AF ply each others “areas” because there is money to be made. France is closer to Africa from France but that does not stop KL going there. Netherlands is closer ( more or less) to Scandinavia and Asia but that does not stop AF gong there.

There will be generally more demand to/from MAD & South America, which can justify major and not so major routes, however, the main business cities and growing economies can justify direct links to London and be rewarding – these being in my opinion Bogota, Lima , Santiago, (all Lan hubs) , Panama City, Brasilia and maybe other Brazilian cities now that TAM will join Oneworld, with 3/4 flights a week an ideal way to start.

[canucklad]

spot on sparkflyer

The last time I checked IAG was not our national carrier.
And, yes I know that BA isn’t officially our designated national carrier.

And if I wanted to business in London and I lived in Lima, the last thing I would want to do is transit through Madrid!

I congratulate BA on its new non-stop service to Austin, yet it seems strange that it doesn’t apply the same logic to LATAM . Especially when you consider that Americans are conditioned to transiting through hubs, unlike other nationalities who seek direct flights whenever possible!

[MarcusUK]

The AF /KLM shares I bought 2 years ago, have doubled in value, and they group made a profit for the last 2 quarters. Their Strategy 2015 has made a significant impact, and is turning around the group. Having said that, they have had to write off 1 Billion Euros due to the Alitalia debacle.
Their 2013 results are due out 20th February, and could be seen on the KLM corporate or shareholder site.

KLM has made a profit for some time, with AF the side dragging the other down, although this is never made so clear.

All the KLM flights i have made in Business, the cabins are full, and the Business / frequent flyer lounges at Schiphol, also very full all day!
I am sure they will be more popular with their very spacious new Cabins and Flat bed seats. It may well be difficult to get a seat in the future due to the lower number of seats per plane, and the equivalent of 1st class amounts of space!

[BigDog.]

AF/KLM have made a $100million investment and taken a small stake in Brazil’s second largest airline Gol Linhas Aereas Inteligentes

…With this deal we will lead the race in Latin America where we expect strong growth in the coming years…especially as European growth will remain sluggish says Aleandre de Juniac the CEO.

(The FT reports)

As Brazil equates to nearly 50% of the south American economy, this is a smart move. IAG on the other had overpaid significantly for IB in the first inst. IB has gone on to incur over Euro 1,000,000,000 in losses. Walsh has thus far taken 8 years (5 years engaged + 3 years married) at huge cost and shrinkage to begin to sort it. Yet BA, without ceding control to Spain, could have purchased TAP for far less or indeed pre-empted AF/KLM in establishing a bridgehead into by far South America’s largest economy.

[Tom Otley]

Story is here from last night

http://www.businesstraveller.com/news/100258/air-france-teams-up-with-gol

[BusinessBabble]

BigDog:

I see this more as AF/KLM being caught on the back foot, and acting defensively.

– With the addition of TAM and an expanding LAN One World is now the dominant force in South America, GOL has been rumoured to be talking with TAP so giving Star Alliance all their traffic, leaving Sky Team with few partners to fill all those flights to Europe, where they lead by market share. Delta invested in GOL for the same reasons.

– Whilst IB lost Euro1 billion, AF/KLM has lost over double that and is still going through a restructuring process, and TAP lost Euro 450 million.

– TAP is not an attractive investment, they’ve tried selling with no takers. In addition, they are highly exposed to one market in a developing country where the economy and currency goes up and down like a yo-yo, it’s high risk. Iberia is a safer bet with reasonable market share to a greater number of countries, so spreading their risk.

– The fact IAG may have a group holding company in Spain does not equate to ceding control to Spain. IAG is controlled by it’s shareholders.

From a purely business perspective, I’d stick with IAG’s strategy for the time being.

[NameRemoved-18/12/14]

Please excuse my ignorance BusinessBabble, but what is the difference between a codeshare and interline partner? It is very easy to book a TAP flight via one of its various Brazilian entry points and onwards with GOL (or Azul).

[BigDog.]

BusinesBabble

– Having TAM in the One World alliance is good. However imo alliances being fickle by nature have peaked whereas investing and taking a stake in key relationships is becoming increasingly prevalent.

– In what way does AF losing billions justify or negate the fact that BA should not have got into bed with IB? The lost opportunity to BA owners is huge. Walsh has apologised for the timing of the merger (and therefore the equity split), even if he had the sense to ensure IB was restructured prior to the marriage and get a substantial discount for the appalling state of the Spanish economy, there were cheaper/better routes to the south American market – not as glamorous though.

– Spreading Risk : Adding Alan Stanford, Charles Ponzi and Bernie Madoff to your portfolio managers may spread your risk but I would not advise it.

Brazil – Wilting Giant (bigger than next 5 economies combined)
Colombia – decades of civil conflict; major export – drugs; though economy is growing.
Argentina – although rich in natural resources, the economy collapsed a decade ago, recently the peso was in free fall with a growing USD black market.
Peru – Growing for 15 consecutive years. Good
Venezula – Has south America’s highest rate of inflation at over 50%, fixed exchange rate resulting in a USD black market and substantial black outs.

– IAG is incorporated in Spain as a Sociedad Anónima, its board meetings are held in Madrid and its tax domicile is in Spain. Ipso facto it is a Spanish Company. In addition until recently its largest shareholder was Bankia/Spanish Government.

BA, remaining British, as the parent developing its own potential, making strategic investments (eg Vueling) and building rather than being encumbered by partners and their legacy issues would be the right call. If it had to pick up a basket case, then wait/buy at the bottom of the market, not the top as Walsh did.

[BusinessBabble]

Probably better explained by someone who works in the travel industry but…

An interline agreement allows passengers to add flight legs to an itinerary from one airline by using a second airlines flights, but they involve transferring from one carrier to another. Lots of airlines also have interline agreements that allow, for example, BA to put passengers on a VS flight in the event of a cancellation.

Code sharing agreements are more comprehensive and principally allow one airline to market and sell flights on another airlines metal as if it was their own metal, and so offer passengers the ability to gain frequent flyer rewards on the codeshare flights.

Ultimately, an airline has more control over a codeshare agreement and I guess over the ability to gain passengers from a such an agreement.

Please feel free anyone else in the know to clarify?

[BusinessBabble]

BigDog

– Possibly, we’ll have to wait and see how all these alliances pan out.

– I was attempting to point out this was an irrelevant point to this topic, everyone knows the timing of the BA / IB deal could have been better. The point is that IB’s performance since that date is better than that of AF/KLM and, when taking into account it’s small size, TAP.

– This simply reinforces my point regarding the unpredictable nature of all the economies in South America, including Brazil. You’ve missed of Chile (I’d guess the most high yielding destination in South America) and Ecuador.

– Again, IAG is controlled by its shareholders, who voted to accept the BA / IB deal. People from around the world can buy and sell shares in any publicly listed company, I really don’t see this as an issue specific to IAG. Personally, I wonder in the future whether we’ll be thinking the IAG deal was worth it just to get control of Vueling, we’ll see!

– IAG full year results are due 28 Feb, so we’ll get a clearer picture then on the current financial state of IB.

I think we’ll just have to disagree on this one

[BigDog.]

Businessbabble

I merely went for the next 4 largest economies after Brazil. Chile has less than 15% of the Brazilian GDP, Ecuador has less than half of Chile’s.

http://en.wikipedia.org/wiki/List_of_South_American_countries_by_GDP_(PPP)

[BusinessBabble]

Bigdog

GDP alone does not equate to high yielding passengers, just look at the relative small number of flights between Europe and China, which has a GDP about 4 times that of Brazil.

[Author]

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