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Latin America

Chile’s JetSmart Enters Fray as Potential Spoiler to Viva Air-Avianca Merger

Edward Russell
February 8th, 2023 at 12:48 PM EST

A JetSmart Airbus A320neo takes off

Chilean discounter JetSmart wants to buy Colombian Viva Air in the latest twist to South America’s on-going round of airline consolidation. The offer is the latest stumbling block to Avianca’s proposed acquisition of Viva Air that has been held up by Colombian regulators on competition grounds.

“We believe that a merger between JetSmart and Viva Air will allow us to maintain the ultra-low-cost model in Colombia, helping to continue offering more routes at lower prices,” JetSmart CEO Estuardo Ortiz said in a statement Wednesday. He added that such a combination, between two budget airlines, would preserve competition in Colombia.

JetSmart is backed by U.S.-based private equity firm Indigo Partners, which is known for its successful investments in low-cost carriers around the world, including Frontier Airlines, Volaris, and Wizz Air. American Airlines plans to take a minority stake in JetSmart under a deal that was approved by Chilean regulators in January.

The offer for Viva Air comes less than a month after Colombia’s aviation regulator, Aerocivil, said it would re-evaluate the airline’s proposed merger with Avianca after the airlines offered concessions aimed at preserving competition. The regulator rejected the tie-up in November. Avianca and Viva Air were Colombia’s first and third largest carriers in 2022, with respective 45 percent and 20 percent shares of domestic seats, according to Diio by Cirium schedule data.

South America is awash in potential airline consolidation deals. In addition to the proposed Avianca-Viva Air combination, Avianca and Brazil’s Gol are separately seeking to merge and create the new airline holding company, Abra. The new group could also eventually include Chile’s Sky Airline. American has invested in Gol, and plans to in JetSmart, as part of expanded commercial partnerships. And, in 2021, Azul tried unsuccessfully to acquire Latam Airlines Group’s Brazilian franchise in an effort to further strengthen its share in South America’s largest market.

Avianca’s plan to form Abra with Gol is separate from its proposal to acquire Viva Air, executives have said. JetSmart’s interest in Viva Air, if successful, is unlikely to disrupt that combination of the Brazilian and Colombian airlines.

An Avianca spokesperson said JetSmart’s offer was an “unfeasible proposal to generate a distraction” from the pending Avianca-Viva air combination. In addition, with the airline as a controlling shareholder in Viva Air, Avianca has a say in any potential sale to JetSmart.

In an October interview, Ortiz said the Latin American aviation market was becoming more competitive post-pandemic following the restructurings of Avianca and Latam, and the proposed mergers in the market. He did not express any interest in acquiring Viva Air or any other airline at the time.

“You’ll see a market with probably fewer players but more efficient,” he said. “So “I do expect a more competitive region … This is something that we thought was coming and I think it is still coming our way.”

A JetSmart-Viva Air merger would give the former a strong franchise in Colombia where it has a limited presence today. JetSmart has domestic operations in Argentina, Chile, and Peru; the former followed its 2019 purchase of Norwegian Air’s Argentina business. The airline serves just three cities in Colombia — Bogotá, Cali, and Medellin — from Santiago and Antofagasta in Chile, Diio schedules show.

Viva Air operates almost exclusively within Colombia or on international routes from the country. It also has a Peruvian subsidiary but that carrier only operates three routes from Lima to Bogotá and Medellin, as well as to Cuzco, according to Diio.

JetSmart (blue) and Viva Air (yellow) routes in February 2023. (Diio by Cirium)

The two airlines also have complementary fleets. JetSmart operated 23 Airbus A320 family aircraft, including nine A320neos and three A321neos, at the end of January, according to Airbus’ latest data. Viva Air also operated 23 A320 family jets, including 12 A320neos.

Viva Air has struggled financially since the pandemic despite the rebound in travel demand. The weak Colombian peso against the U.S. dollar and high fuel costs have added to its challenges. Many expenses, including aircraft leases and fuel expenses, are due in dollars.

“Staying independent in aviation in the 2020s is not an option. It was hard pre-pandemic. It’s not an option now,” Viva Air CEO Felix Antelo said in an argument for the airline’s merger with Avianca in October.

Viva Air did not respond to requests for comment.

Edward Russell
February 8th, 2023 at 12:48 PM EST

Tags: Latin America

Photo credit: A JetSmart Airbus A320neo takes off Airbus

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