Mon | Sep 27, 2021

American Airlines to invest in Chilean budget carrier

Published:Friday | July 30, 2021 | 12:10 AM

American Airlines plans to invest in a Chilean budget airline and sell seats on each other’s flights to help American extend its reach in South America.

American said on Thursday that it has signed a letter of intent for the deal with JetSmart. American executives declined to say how much the airline proposes to invest in JetSmart, other than describing it as a minority stake.

If the companies close the deal and win government approval, travellers could earn and spend American frequent-flyer points on JetSmart flights.

The airlines seem an odd fit. American has global reach and chases upscale travellers by offering better accommodations in business class. JetSmart, a so-called ultra-low-cost carrier, doesn’t offer business class or other amenities on its short hops around South America, and it packs more passengers than American does on similar planes.

Vasu Raja, American’s chief revenue officer, said the deal would let both airlines grow profitably throughout Latin America as the travel industry recovers from the pandemic. He said two-thirds of passengers on American flights to and from South America start in South America, and the deal will give them more flight options.

American’s announcement was immediately denounced by the union representing its pilots, which accuses American of causing flight delays by failing to retrain pilots returning from pandemic-related leaves of absence quickly enough.

“It’s curious to us why management would be so focused on other airlines while seeming to ignore our airline,” said Dennis Tajer, a spokesman for the Allied Pilots Association.

JetSmart was founded in 2016 and has just 20 planes, although it has 79 more on order. It serves 33 destinations in South America, mostly in Chile and Argentina. JetSmart overlaps with American in a half-dozen cities, including Buenos Aires; Santiago, Chile; and Bogotá, Colombia.

JetSmart is one of several low-cost carriers controlled or partly owned by US private equity firm Indigo Partners. Others include Denver-based Frontier Airlines, Mexico’s Volaris, and Hungary’s Wizz Air.

American Airlines has struck deals in South America before. Its long-time partnership with the continent’s biggest airline, Latam, collapsed in 2019 when Delta Air Lines swooped in to make a US$2-billion investment in the Chilean carrier. After the pandemic crushed air travel in 2020, Latam filed for bankruptcy protection in the United States.