Executive SummaryThis research study present an overview of the reasons as to why the proposed LATAM merger which was announced on 13th August has not taken place. The merger which is supposed to take place between TAM Brazilian airline and LAN Chilean airline has received résistance and controversies from various groups despite the deal being of great benefit to both the airlines as well as the two countries. For years now, Chile’s LAN airlines as well as Brazil’s TAM airlines have been considered the largest and most important foreign airlines which in the recent times have been affected tremendously by global airline crises resulting to decline among air travelers especially in North America.
The recession therefore has forced many of the airlines too seek alternatives especially in poor performing regions which has forced LAN and TAM to look for a solution to the problem by proposing plans to merge into one company known as LATAM. Airline consolidation today is one of the major solutions many airline companies are resulting to as away of curbing the global airline crisis. With an overview of the argument, the question which the study addressed was “why has the two airlines merged yet despite announcing their plans to merge into one consolidated company”.
To find out the reasons behind the delays in the implementation of the proposed merger the study analyzed the advantages and disadvantages associated with the study. In relation to the argument the study discussed in depth the reasons as to why the two largest Latin American Airlines have not merged yet. The findings indicated that proposed merger had clear set of motivators for the two airlines and they comprised of opportunity to create synergies, improve operational efficiency, improve economies of scale and break barriers related to foreign entry in both countries.
The research findings concluded that the proposed LATAM merger is an opportunity which will create value for the two airlines and the only option for the two airlines to deal with the global airline crises at hand hence need to resolve the current factors hindering the plans to take advantage of the opportunity at hand. 1.0. Introduction 1.1. Overview of LAN and TAMA merger is described as a combination of two or more companies into one big company in which all the companies except to lose their identity through absorption.
The companies usually merge through consolidation in which all the companies pull their own resource together for a common purpose (Gaughan, 78-87). Primarily, the main benefits of consolidation includes better capacity to control, geographic diversity, economies of scale to cut on costs as well as a robust networks and increase in revenues. TAM is one of the largest airlines in Brazil which through its hub in Sao Paulo offers convenient scheduled services to approximately 42 destinations within Brazil and among other eighteen destinations in Europe, United States and South America (Ben & Frank, 40-50).
The Sao Paulo-based TAM airline controls approximately 43% of the domestic market in Latin America. LAN on the other hand is a Chilean airline which has its operations in Chile as well as in other countries such as Peru, Argentina, Ecuador as well as cargo airline affiliates in Brazil, Colombia, Mexico and United States (Michelle, 45-67). It is one of the biggest airlines in Latin America with a strong network of international routes which on daily basis generate more revenues per passenger than the domestic flights which operate within Chile.
Tam is a member of the Star Alliance airline cooperation group while LAN is a member of the Oneworld (Snyder, 20-30).