Avianca, Viva plan a merger to keep competing

Can a merger of competing airlines improve customer choice and lower prices? History suggests, time and again, the answer is no. But that did not stop Avianca from suggesting that a buyout of Viva would do precisely that.

This new and robust group of airlines will benefit customers by using a more efficient cost structure to offer lower fares, a route network that delivers direct connections between destinations, a strong loyalty program, and friendly and efficient service.

– Roberto Kriete, Avianca’s main shareholder and Chairman of the Board of Directors

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Under the proposed deal – which Colombian and Peruvian regulators must still approve – Viva would become a company within the Avianca Group holding company. The overall Group would leverage its size for purchasing power and other economic benefits across both airlines. But the two would remain separate brands and continue to compete. At least in theory.

Roberto Kriete, Avianca’s main shareholder and Chairman of the Board of Directors, describes a situation where “the combination will help ensure that customers in Colombia and Latin America have two airlines that serve the Latin American market.”

Declan Ryan, founding partner of Viva, expressed similar optimism:

This is an important day for Viva as it is the perfect scenario to continue with our growth and expansion strategy, staying true to our goal of inclusiveness in air travel. If the authorities approve the management of both groups under the same holding company, it will encourage the growth of the air transport market, promoting low rates for users and good service with the best punctuality, allowing everyone to fly with a world of destinations. This transaction and a potential future combination will create high-skilled jobs for our employees and our suppliers. By delivering the fundamental good of bringing people together, we will positively impact the connectivity of Colombia, the region, and the economic development of the country.

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Generating the operational savings is not too difficult a promise to deliver on. Increased purchasing power should help the carriers, and eliminating some duplicate roles in back-office or even airport operations work should bring real economic value to the companies.

A promise of lower fares for passengers, however, is much harder to deliver on. And one company running two separate and competing brands rarely works out well. It can work where one is the full-service brand and the other unbundled. Or where the two airlines operate in distinct markets with minimal route overlap.

But the assertion they will remain competitive with each other, rather than partitioning the market to maximize profits, seems suspect.