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American Airlines Tightens Its Grip on Latin America

Stocks in this article: AAMRQ.PKDALLCCUAL

MIAMI ( TheStreet) -- Already by far the strongest airline in Latin America, American (AAMRQ.PK) is getting stronger.

Two recent events will help American consolidate its grip on the region. On Feb. 14, American said it plans to merge with US Airways (LCC), strengthening its ability to feed its Latin American routes. On March 7, Tam Airlines, Brazil's biggest carrier, said it will join Oneworld alliance, already the biggest alliance in South America.

"Our organic growth in the region is pretty good," said Art Torno, vice president for Mexico, Caribbean and Latin America, in an interview. "Should the merger be approved, it would add three more hubs into our network, and we also have the recent decision of TAM to come into Oneworld. Those things give you good strength in Latin America. I can't say we are ever content, but we are very optimistic."

A year ago, Torno replaced Peter Dolara as the chief of American's Latin empire. Dolara had represented American in Miami since shortly after former CEO Bob Crandall purchased Eastern's Miami-focused Latin American network in 1989 for about $320 million. Of all the things Crandall did to build American, the best one may have been his move on Latin America.

On Dec. 20, 1989, Crandall flew to Miami to announce the deal. The previous week, American had bought TWA's London-Chicago route authority and Braniff's landing rights at Chicago and New York. On Dec. 21, The Miami Herald (pictured) proclaimed: "American Airlines, already the top domestic airline, has suddenly become a major international player as well, paying weak competitors $665 million for valuable foreign routes to 18 countries."

The Latin presence has grown. American's Miami hub today offers 328 daily departures. It serves 21 destinations in South America, 28 in the Caribbean, 12 in Central America and Mexico, four in Europe, two in Canada and 48 in the U.S. (some are seasonal).

Systemwide during the peak summer season, including flights from Dallas and other hubs, American flies 322 weekly flights to 21 destinations in South America, 174 weekly flights to 10 destinations in Central America, 552 weekly flights to 32 destinations in the Caribbean and 417 weekly flights to 19 destinations in Mexico. The total is 2,191 weekly flights to 82 destinations.

Meanwhile, United (UAL) has 1,043 weekly flights to 61 destinations in the region, including 287 to South and Central America, 168 to the Caribbean and 588 to Mexico, where it has 28 destinations. Delta (DAL) has more than 1,000 weekly flights to 49 destinations in Latin America and the Caribbean, including 460 weekly flights to Mexico.

Even before the merger, American was growing in the region. It grew Latin American capacity by 4.5% in 2012, adding service including Miami to Asuncion, Manaus and Roatan, a Honduran island. This year the carrier plans to add routes from Miami to Curitiba and Porto Alegre in Brazil. Torno loves to talk about Brazil, a large country where the economy, the middle class and the desire to travel are growing rapidly. While American's presence in Asia is less than its two competitors' presence, the airline's view is that the strong presence in Brazil compensates, at least partially.

"Brazil is an incredible market," Torno said. "It's as big as the continental U.S., and assuming that we have these two cities (Curitiba and Porto Alegre), we are going to be flying to nine cities in Brazil, with 111 weekly frequencies. In 2006, all of the U.S. airlines combined flew 105 weekly flights to Brazil." When American began flying its new Boeing 777-300ER aircraft in its new colors, the first flight was from Dallas to Sao Paulo. As Torno recalls it, when a reporter in Sao Paulo asked CEO Tom Horton why Brazil was selected to be the first destination, Horton responded "We flew to Brazil because Brazil is our most important international market."

In anticipation of an Open Skies treaty agreement that will be fully in place in 2015, each country is adding four daily flights per year until then. This year, Sao Paolo route authorities are available, and three carriers have applied. American wants Los Angeles in 2013 and Chicago in 2014, US Airways wants Charlotte in 2013 and Philadelphia in 2014, and Delta wants Atlanta and New York Kennedy in 2013.

"While Delta is a strong competitor, it faces serious challenges in competing against the dominant U.S.-Brazil incumbent carriers, American and United," Delta said in its application. "American leads all others with 47 unrestricted frequencies -- nearly half the entire U.S. allocation. Following its merger with Continental, United is a strong second place challenger with 35 unrestricted frequencies. Delta is disadvantaged by its third place standing, with only 23 unrestricted frequencies."

Playing off its strength, American is also building a presence in the South America to Asia market. For two decades, people have speculated that one day Miami will have non-stop flights to Asia. While that remains a possibility, Torno said that in the near term "we are working hard to put that traffic over DFW," which has flights from four key South American cities -- Buenos Aires; Caracas; Santiago, Chile and Sao Paulo -- with service to Bogota and Lima scheduled to begin this year.

As for US Airways, from its biggest hub in Charlotte it serves 16 Caribbean destinations, Mexico City and Rio de Jainero as well as 108 domestic destinations. Imperial Capital analyst Bob McAdoo thinks the broad range of domestic destinations means that American could add Latin flights to Charlotte and eliminate some marginal domestic flights in Miami.

American "has cobbled together a system of 50 feed cities into Miami from various U.S. destinations," McAdoo, anticipating a merger, wrote in a December 2012 report. "Many of these cities receive only two 50-seat flights per day. (But) US Airways' Charlotte hub has multiple nonstop flights to each of the 50 domestic cities." He suggested that in some international markets where American has multiple daily flights to Miami, a flight could shift to Charlotte. The switch would not only eliminate uneconomic domestic flights to Miami, but also would provide more domestic cities with international connections through Charlotte.

-- Written by Ted Reed in Charlotte, N.C.

>To contact the writer of this article, click here: Ted Reed

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