1 Dec 2021
Aviado Partners reviews the announced Allegiant Air & Viva Aerobus Partnership (Source: Airline Weekly)
Aviado Partners Advisory Services GmbH, a leading international transport-sector consulting firm, is interviewed by Edward Russell from Airline Weekly. Aviado Partners Managing Director Shakeel Adam discussed the announced partnership between Allegiant Air and Viva Aerobus. https://airlineweekly.com/2021/12/allegiant-air-and-viva-aerobus-propose-unique-u-s-mexico-low-cost-alliance/
The airlines describe the partnership as "...a fully-integrated Commercial Alliance Agreement, designed to dramatically expand options for nonstop leisure air travel between the United States and Mexico, while lowering fares to make travel more accessible and affordable..." They have submitted an application to the U.S. Department of Transportation requesting antitrust immunity, also referred to as ATI. Such a partnership also requires approval by the Federal Economic Competition Commission (Comisión Federal de Competencia Económica) in Mexico. The filing with the Securities and Exchange Commission can be found here. https://ir.allegiantair.com/node/20386/html#a120121alliancepressrele.htm.
Allegiant Air currently flies exclusively within the United States while Viva Aerobus primarily flies within Mexico in addition to Cuba, Colombia and a few routes to the United States.
For more than 30 years airlines around the world have been expanding into partnerships with the hope of
- gaining benefits on two dimensions
- enhancing competitiveness
- increasing profitability.
In the beginning such partnerships most definitely provided defence against competition by allowing airlines to offer a larger footprint. However, over time the effect of defending one's own competitive position waned for the larger airlines as they already had numerous partnerships in place. Partnering does continue to enhance market competitiveness for smaller carriers.
The other benefit of increasing profitability was also almost guaranteed in the beginning. However, for the past nearly 20 years, many partnerships actually cannibalise revenue and are unprofitable.
A third benefit of commercial partnerships has been cost and revenue synergies, but these are minimal and do not on their own justify entering into partnership.
Will such a partnership between Allegiant Air and Viva Aerobus lead to benefits for either or both parties? Read the article by Airline Weekly here.
At first glance this looks to essentially be an equity investment with cost synergies through colocation and combining operations. Whether the proposed commercial benefits can be realised remains to be seen. But the largest hurdle remains approval by the US DOT.
U.S. Department of Transportation
Federal Economic Competition Commission (Comisión Federal de Competencia Económica) in Mexico
About Aviado-Partners Consulting GmbH
Aviado-Partners Consulting GmbH is a specialist management consulting firm providing objective, independent and evidence-based analysis, advice and implementation support to airlines, airports, rail operators, hotels and other transportation related companies around the world. The firm advises management, boards, investors, governments, leasing companies and other stakeholders across all the key commercial and strategy issues. Aviado Partners' team members and associates have worked with leading international full service and low cost airlines, global consulting firms, financial institutions and manufacturers both as members of senior management as well as an airline consultant. The Partners and Associates have led or had significant involvement in numerous merger, acquisition, restructuring, start-up, aircraft selection and performance improvement assignments in Asia, the United States, Canada, South America, Russia & the CIS, Africa and the Middle East.
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