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Analysis: Delta-LATAM Joint Venture Has Strong Cargo Upside

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Analysis: Delta-LATAM Joint Venture Has Strong Cargo Upside

The joint venture between Delta Airlines (NYSE: DAL) and LATAM Airlines (NYSE: LTM) proposed last month was motivated by synergies on the passenger side, but analysts also see attractive opportunities to extend cargo reach, make money and benefit shippers.

Delta officials have not publicly discussed the potential to gain from each other's cargo strengths and declined to make anyone available for an interview, saying it's too early to discuss any plans. The reluctance to comment likely stems from both parties needing antitrust approval from U.S. and Chilean competition authorities before cooperating in any strategically meaningful way, which Delta CEO Ed Bastian said could take one to two years.

Until then, the partnership will be limited to code sharing, enabling each airline to sell seats on the other's aircraft. Industry observers expect the joint venture to get the green light because the Delta and LATAM route networks don't overlap much.

With antitrust immunity, "there should be a number of opportunities, both operationally and commercially, to find several million dollars of upside for" Delta and LATAM, Neel Jones Shah, the head of airfreight for new-age freight forwarder Flexport and a former cargo chief at Delta, told FreightWaves. "And it will be a much more compelling proposition for customers. If you can talk to Delta and at the same time, not only get access to Delta's network, but the freighter network of LATAM, it's a much more interesting conversation you can have."

LATAM has 11 Boeing 767-300 freighters that supplement its passenger network and is scheduled to receive another converted passenger plane from Boeing next year. The carrier sold off its last two Boeing 777 freighters as part of a strategy to operate a uniform fleet with planes better suited for the Latin America market. The 777s proved too big for the seasonal fluctuations in goods and burned more fuel than the 767s, which give LATAM more operational flexibility in terms of routes and frequency, according to LATAM and industry experts.

Cargo represents 11% of LATAM's annual revenue, or about $1.2 billion, compared to 2% for Delta. Last year, LATAM served about 5,000 customers and transported 921,000 tons of cargo, two-thirds of it on passenger planes, according to its annual report.

Delta, which is investing $2.25 billion for a 20% share of LATAM, had $865 million in cargo revenue in 2018. According to U.S. airline revenue data available on FreightWaves' SONAR platform, Delta pulls in about $10 million to $12 million in cargo revenue in Latin America per quarter.

Airfreight experts say the two cargo teams will likely explore how to leverage their combined capabilities, drive efficiency and take out costs in areas such as network planning, ground handling, ground transportation and marketing.

Antitrust immunity gives companies the right to cooperate on pricing and "then it gets interesting because all of a sudden you can coordinate your approach to customers, do joint rate sheets," Jones Shah said. "Delta can sell upper deck on LATAM. LATAM can sell Delta's network beyond the airports it flies to. They can tap into each other's trucking networks and use each other's warehouses."

LATAM, for example, doesn't fly to Asia, but it could connect, eastbound and westbound, into Delta's Asian network, Jones Shah explained. "I can think of a synergy right now, where instead of LATAM flying a freighter into Chicago, maybe they fly into [Delta's hub in] Detroit and take advantage of Delta's lift to the Pacific, whether it's China, Korea or Japan. But they have to run the modeling to see how to make it work."

The joint venture is a good fit for Delta because it doesn't have extensive service deep in South America, said a well-connected industry source who asked not to be named so as not to jeopardize ongoing professional relationships. Meanwhile, he added, South Florida could become an excellent hub for Delta and its European joint venture partners Air France-KLM and Virgin Atlantic to feed cargo to South America, and vice versa. Connections could also take place in Atlanta and New York.

LATAM's 767 freighters fit well with Delta's 767 passenger jets on trans-Atlantic routes from the perspective of having comparable lower deck space that would allow cargo to be easily swapped between them, the source added.

Chile, LATAM's home base, is a huge export economy with commodities such as salmon and fruit shipped by air, noted Jesse Cohen, FreightWaves air cargo market expert.

Image Sourced from Pixabay

Posted-In: air cargo Delta Airlines Freight Freightwaves shippingNews Markets General

 

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