Avianca Embraces Budget Airline Model in Deal for Viva Air

Colombia-based Avianca embraced a low-cost model as part of its U.S. Chapter 11 bankruptcy reorganization, and now has plans to acquire budget competitor Viva Air.

Financial terms of the deal that was announced on April 29 were not released, but Viva Air, which has operations in Colombia and Peru, would become part of the newly reconstituted Avianca Group.

The two airlines will continue to operate separately under their own brands, at least for the time being. Combining fully would require regulatory approvals in both Colombia and Peru. In addition, Viva founding partner and Executive Chairman Declan Ryan would join the Avianca board.

“This new and robust group of airlines will benefit customers by using a more efficient cost structure to offer lower fares, a route network that delivers direct connections between destinations, a strong loyalty program," said Roberto Kriete, Avianca's main shareholder and board chairman, in a statement.

Latin America has proven one of the most dynamic airline markets as the industry recovers from the Covid-19 crisis. Three of the region's largest airlines — Aeromexico, Avianca, and Latam Airlines Group — have or are reorganizing under Chapter 11 in the U.S., and budget carriers have been on the ascent. Volaris has used Aeromexico's restructuring to solidify its market leadership in Mexico; and both JetSmart and Viva have used Avianca and Latam's respective reorganizations to expand in Argentina, Chile, Colombia, and Peru.

And in Brazil, South America's largest market, Azul attempted a hostile takeover of Latam with the backing of some of the Chilean airline's largest creditors. In addition, Gol acquired a regional airline to add flights and boost its share at the highly sought-after but constrained São Paulo Congonhas airport.

While Avianca's acquisition of Viva comes as something of a surprise, the fact that it is participating in consolidation of the Latin American aviation market does not. “Do we believe in consolidation as a good thing for the industry across the region? We do," Avianca CEO Adrian Neuhauser told Airline Weekly in October.

At the time, there was chatter about a possible combination between Avianca and Chile's Sky Airline. That deal, which was pushed by two of Avianca's creditors, Caoba Capital and Elliot Investment Management, has not come to fruition.

A merger of Avianca and Viva makes some sense. The former emerged from Chapter 11 having slashed expenses and with a business plan that called for denser seating on its aircraft and more point-to-point routes bypassing its Bogotá hub and increasing the utilization of its fleet — all of which are hallmarks of discounters like Viva. Avianca even began adding flights that competed with Viva at the latter's new Medellin hub.

Avianca and Viva together would have a 67 percent share of domestic Colombian capacity — but only an 11 percent share of South American capacity — in April, according to Cirium schedules. Their next largest competitor, Latam, has a 26 percent share. Avianca closed its Peruvian subsidiary in 2020 thus Viva would be a return of sorts for the airline to the market that is among the fastest growing in South America.