South American airlines TAM and LAN agree to
merge to challenge the supremacy of North
American and European carriers on routes to LatAm.

I say ……

The intricate alliances and code-share arrangements that exist between airilnes will require a number of potentially messy divorces before TAM-LAN marriage can take place.

 

After the many mergers and alliances of airlines in Europe and North America, it should come as no surprise that the airlines of emerging markets should want to challenge the worldwide supremacy of the northern hemisphere’s long established leading brands.

 

Unlike two totally independent businesses that decide to join their destiny, airlines cannot merge without causing considerable “collateral damage”. This is because the airline industry is quite incestuous and almost every airline has code-share arrangements with some of its competitors, shared facilities in airports, and is in many cases a member of a global alliance. Realising the marriage of LAN and TAM will require a number of divorces until the two parties are allowed to unite. In this particular instance, the combined LAN-TAM company will need to decide whether it will be a member of the One World or the Star Alliance network, and this will have a decisive impact on these respective networks’ presence and access on the South American continent and, consequently, on those networks’ competitive position for intercontinental traffic between Asia or Europe and the Americas.

 

What is at stake is huge, and one cannot exclude that the very northern-hemisphere anchored Air France-KLM “SkyTeam” alliance may seize the opportunity to push Star Alliance and One World aside and set foot in a big way in South America. After all, Aeromexico is already a member of SkyTeam, so pushing a little further south could make eminent sense…

 

So how does all of this influence LAN and TAM’s ability to merge and integrate successfully to become a leading global player? Best practice shows us that pre-integration preparation is crucial if two companies are to blend into one and turn the initial business case of the merger into a reality. This requires an inordinate amount of focus and careful planning, strong leadership and clear communication aimed at reassuring management and staff, shareholders, customers and other stakeholders. One would assume that LAN and TAM have thought through the strategic challenge that will be posed by their choice of global alliance and the rearrangement of their numerous code-sharing agreements. But even if they have clarity of intent, the coming weeks and months will see intense and prolonged negotiations and many offers from all sides trying to seduce the LAN-TAM tandem towards joining either of the existing global alliances.

 

Typically, companies that merge need to ensure they present “one face to the customer” as soon as feasible. Presenting “one face to the outside world” is the next step, which comprises all external interfaces including importantly procurement. But what if this huge integration effort is distracted and hijacked by negotiations with One World, Star Alliance and possibly SkyTeam, all trying to seduce the new big kid on the block and establish dominance on the South American continent?

 

We must hope for the sake of LAN and TAM that they have found an excellent Integration Director to successfully blend those two businesses, and that the companies’ senior executives will have the wisdom of clearly segregating and protecting the daily running of the business from the integration process and the negotiation of their future alliances. The LAN – TAM merger was announced on Friday 13^th August – but markets and consumers are not superstitious - they will base their verdict on hard facts: consistency of service levels, convenience of schedules, value for money, and seamless routing through code-sharing or other alliance agreements.

 

Let LAN and TAM not fall victim of the mistakes which brought other airlines to their demise. Integrating airlines is complex, because the customer’s perception is based on consistency of service, which is harder to implement than harmonising the specifications of a hardware product. Many airlines got it wrong in the past: Swissair thought 10 years ago they could acquire Sabena, Air Portugal, Air Liberté and others and rapidly improve their standards to match their own much envied reputation. This ended up in a big crash: no aircraft destroyed, nobody was injured or killed, but the whole Swissair Group went bust because the integration of the acquired companies and the way they would present “one face to the customer” had not been thought through.

 

LAN and TAM deserve far better, if only because of their crucial importance in Latin America. Maybe they chose that Friday 13^th on purpose after all …

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