Delta's new GOL
12-08-2011, 03:49 AM
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Delta's new GOL
Instead of growing internally, and increasing our flying, Delta buy's GOL Airline 
By Susan Carey and Matthew Cowley Of THE WALL STREET JOURNAL Delta Air Lines Inc. (DAL), moving to build its market heft in fast-growing Latin America, on Wednesday said it agreed to pay $100 million to take a nonvoting 3% stake in Gol Linhas Aereas Inteligentes (GOL, GOLL4.BR) as part of a broader alliance with the Brazilian carrier.
The deal cements Delta's relationships with leading carriers in Latin American's two largest air markets after it agreed in August to take a 3.5% stake in Grupo AeroMexico SAB. Delta also has a relationship with Aerolineas Argentinas, the major Argentine carrier which is slated next year to join the SkyTeam global marketing group in which the U.S. carrier is a leading member.
The Gol pact comes at a crucial time for the three global alliances jockeying for position in Latin America, the world's fastest-growing aviation market. The International Air Transport Association expects traffic in the region to rise 10.6% this year and 8.5% in 2012, more than twice the global average.
Gol is not a member of a global alliance, and said the Delta deal doesn't envision Gol joining SkyTeam club, which also includes Air France-KLM SA, AeroMexico, China Southern Airlines and Korean Air.
Constantino de Oliveira Jr., Gol's chief executive, said on a conference call Wednesday that he intends for the airline to stay independent of alliances, but build strong bilateral relationships. He said the one with Delta will allow Gol to code-share, or put its flight code on Delta's flights between Brazil and the U.S., which will allow it to sell those Delta flights as if they were operated by Gol. Conversely, Delta will be able to sell to its customers connections to Gol's internal Brazilian flights.
But Delta's investment essentially locks in Gol and keeps it from joining a rival grouping, said John Thomas, global head of the aviation and travel practice at L.E.K Consulting. "Gol may not join SkyTeam but they could align with (Delta partners) Aerolineas and look for opportunities in Mexico."
Delta, which remains the No. 3 U.S. airline to Latin America after AMR Corp.'s American Airlines and United Continental Holdings Inc., has expanded its capacity in the region by 43% since 2005. Its investment in Gol, a 10-year-old carrier and the region's largest discounter, brings Delta a seat on the Brazilian carrier's board and a long-term exclusive commercial alliance. This includes frequent-flier and airport lounge reciprocity and coordinated sales efforts, Delta and Gol said.
American, which already has a code-sharing relationship with Gol, stressed Wednesday that Delta's news will have no impact on its own deal with Gol, which is based in Sao Paulo. But Gol said The American arrangement is slated to expire in mid-2012. Delta insists that it will be the exclusive U.S. partner of Gol, which serves 51 Brazilian destinations, flies to 11 cities in South American and the Caribbean, owns a large frequent flier program and recently acquired a smaller Brazilian discount carrier, WebJet.
With low unemployment, rising income and plentiful credit, Brazil has spawned a new generation of air travelers. The local airline industry has seen double-digit annual growth for much of the past decade. Passenger traffic was up 17% in the first 10 months of this year, compared with the prior-year period, according to Brazil's civil aviation authority, ANAC. Some major global events, including the 2014 World Cut and the 2016 Olympic Games, only add to the attractiveness of the market.
But the growth has increasingly come at the expense of profits, particularly since the launch of a slew of new airlines in recent years. On Wednesday, Gol Mr. Oliveira said growth has slowed in recent months as a price war eased, which is "extremely healthy" and will allow airlines to rebuild their finances. Gol swung to a third quarter loss of BRL516.5 million, due largely to the strong appreciation to the U.S. dollar, which drives up the cost of its dollar-denominated debt. A year earlier, the company had a profit of BRL110 million.
A far larger and more complex deal is making its way through Brazil's lengthy antitrust process. Last year, Chilean airline LAN SA and Gol's biggest rival in the local market, TAM SA, agreed to merge into Latam Airlines Group.
If the deal is completed as expected early next year, it will lead to the creation of the largest airline in Latin America. TAM commands 41% of the domestic Brazilian market and also serves long-haul destinations such as the U.S. and Europe. LAN is the leading Chilean domestic and longhaul carrier, and has regional affiliates in Peru, Ecuador, Argentina and Colombia.
Chilean regulators already have required that a combined LAN and TAM can only be a member of one global alliance.
Currently, Tam is a member of the Star Alliance, whose members include United Continental, Deutsche Lufthansa AG, Air Canada and All Nippon Airways. LAN is a longtime member of the Oneworld grouping, which includes American, British Airways and Japan Airlines.
Keeping Latam Airlines Group in Oneworld is important to American, which filed for bankruptcy-court protection last week under the weight of years of losses, high labor costs and waning market share. Latin America is the only geographic region where American has made money over the past couple of years. If Latam Airlines Group jumps to the Star group, "it puts American into a very, very difficult situation," said Mr. Thomas, the consultant.
While American remains the leading U.S. carrier to the region by capacity offered, a new U.S.-Brazil air treaty to take effect in two years is going to open up those routes to new competition. Moreover, American's Mexican partner in Oneworld, Cia. Mexicana de Aviacion, went into bankruptcy in 2010 and shut down, robbing American of a partner in that important market.
Delta's recent investments, while small, "dramatically change its position in Latin America," Mr. Thomas said. "It poses a real challenge to American."
American said Latin American remains an important and growing market for it, and its frequent-flier program, with 66 million members worldwide, will continue to remain competitive in the region. The company also said it is pure speculation that Lan would leave Oneworld, and said it and its Chilean partner are increasing their commercial cooperation.
Delta will pay 22 Brazilian reais ($12.50) per Gol preferred share, a hefty 47% premium from Tuesday's closing price of BRL14.96. A Delta spokesman said the Atlanta-based airline felt the shares were undervalued, but the purpose of the investment isn't to profit on the shares but to lay the foundation for the relationship. The transaction is part of a capital increase of up to BRL280 million for Gol, which will offer subscription rights to all of its shareholders.
Delta shares closed up 1.1% at $8.56.
-Rogerio Jelmayer contributed to this article.
By Susan Carey and Matthew Cowley Of THE WALL STREET JOURNAL Delta Air Lines Inc. (DAL), moving to build its market heft in fast-growing Latin America, on Wednesday said it agreed to pay $100 million to take a nonvoting 3% stake in Gol Linhas Aereas Inteligentes (GOL, GOLL4.BR) as part of a broader alliance with the Brazilian carrier.
The deal cements Delta's relationships with leading carriers in Latin American's two largest air markets after it agreed in August to take a 3.5% stake in Grupo AeroMexico SAB. Delta also has a relationship with Aerolineas Argentinas, the major Argentine carrier which is slated next year to join the SkyTeam global marketing group in which the U.S. carrier is a leading member.
The Gol pact comes at a crucial time for the three global alliances jockeying for position in Latin America, the world's fastest-growing aviation market. The International Air Transport Association expects traffic in the region to rise 10.6% this year and 8.5% in 2012, more than twice the global average.
Gol is not a member of a global alliance, and said the Delta deal doesn't envision Gol joining SkyTeam club, which also includes Air France-KLM SA, AeroMexico, China Southern Airlines and Korean Air.
Constantino de Oliveira Jr., Gol's chief executive, said on a conference call Wednesday that he intends for the airline to stay independent of alliances, but build strong bilateral relationships. He said the one with Delta will allow Gol to code-share, or put its flight code on Delta's flights between Brazil and the U.S., which will allow it to sell those Delta flights as if they were operated by Gol. Conversely, Delta will be able to sell to its customers connections to Gol's internal Brazilian flights.
But Delta's investment essentially locks in Gol and keeps it from joining a rival grouping, said John Thomas, global head of the aviation and travel practice at L.E.K Consulting. "Gol may not join SkyTeam but they could align with (Delta partners) Aerolineas and look for opportunities in Mexico."
Delta, which remains the No. 3 U.S. airline to Latin America after AMR Corp.'s American Airlines and United Continental Holdings Inc., has expanded its capacity in the region by 43% since 2005. Its investment in Gol, a 10-year-old carrier and the region's largest discounter, brings Delta a seat on the Brazilian carrier's board and a long-term exclusive commercial alliance. This includes frequent-flier and airport lounge reciprocity and coordinated sales efforts, Delta and Gol said.
American, which already has a code-sharing relationship with Gol, stressed Wednesday that Delta's news will have no impact on its own deal with Gol, which is based in Sao Paulo. But Gol said The American arrangement is slated to expire in mid-2012. Delta insists that it will be the exclusive U.S. partner of Gol, which serves 51 Brazilian destinations, flies to 11 cities in South American and the Caribbean, owns a large frequent flier program and recently acquired a smaller Brazilian discount carrier, WebJet.
With low unemployment, rising income and plentiful credit, Brazil has spawned a new generation of air travelers. The local airline industry has seen double-digit annual growth for much of the past decade. Passenger traffic was up 17% in the first 10 months of this year, compared with the prior-year period, according to Brazil's civil aviation authority, ANAC. Some major global events, including the 2014 World Cut and the 2016 Olympic Games, only add to the attractiveness of the market.
But the growth has increasingly come at the expense of profits, particularly since the launch of a slew of new airlines in recent years. On Wednesday, Gol Mr. Oliveira said growth has slowed in recent months as a price war eased, which is "extremely healthy" and will allow airlines to rebuild their finances. Gol swung to a third quarter loss of BRL516.5 million, due largely to the strong appreciation to the U.S. dollar, which drives up the cost of its dollar-denominated debt. A year earlier, the company had a profit of BRL110 million.
A far larger and more complex deal is making its way through Brazil's lengthy antitrust process. Last year, Chilean airline LAN SA and Gol's biggest rival in the local market, TAM SA, agreed to merge into Latam Airlines Group.
If the deal is completed as expected early next year, it will lead to the creation of the largest airline in Latin America. TAM commands 41% of the domestic Brazilian market and also serves long-haul destinations such as the U.S. and Europe. LAN is the leading Chilean domestic and longhaul carrier, and has regional affiliates in Peru, Ecuador, Argentina and Colombia.
Chilean regulators already have required that a combined LAN and TAM can only be a member of one global alliance.
Currently, Tam is a member of the Star Alliance, whose members include United Continental, Deutsche Lufthansa AG, Air Canada and All Nippon Airways. LAN is a longtime member of the Oneworld grouping, which includes American, British Airways and Japan Airlines.
Keeping Latam Airlines Group in Oneworld is important to American, which filed for bankruptcy-court protection last week under the weight of years of losses, high labor costs and waning market share. Latin America is the only geographic region where American has made money over the past couple of years. If Latam Airlines Group jumps to the Star group, "it puts American into a very, very difficult situation," said Mr. Thomas, the consultant.
While American remains the leading U.S. carrier to the region by capacity offered, a new U.S.-Brazil air treaty to take effect in two years is going to open up those routes to new competition. Moreover, American's Mexican partner in Oneworld, Cia. Mexicana de Aviacion, went into bankruptcy in 2010 and shut down, robbing American of a partner in that important market.
Delta's recent investments, while small, "dramatically change its position in Latin America," Mr. Thomas said. "It poses a real challenge to American."
American said Latin American remains an important and growing market for it, and its frequent-flier program, with 66 million members worldwide, will continue to remain competitive in the region. The company also said it is pure speculation that Lan would leave Oneworld, and said it and its Chilean partner are increasing their commercial cooperation.
Delta will pay 22 Brazilian reais ($12.50) per Gol preferred share, a hefty 47% premium from Tuesday's closing price of BRL14.96. A Delta spokesman said the Atlanta-based airline felt the shares were undervalued, but the purpose of the investment isn't to profit on the shares but to lay the foundation for the relationship. The transaction is part of a capital increase of up to BRL280 million for Gol, which will offer subscription rights to all of its shareholders.
Delta shares closed up 1.1% at $8.56.
-Rogerio Jelmayer contributed to this article.
12-08-2011, 05:08 AM
#4
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Joined APC: Mar 2008
Posts: 2,919
If I read that correctly, DAL will gain approximately 3% non-controlling ownership in GOL and also have the added benefit of locking GOL in as a code share partner.
Does that 3% ownership/interest entitle DAL to percentage of profits gained on the GOL side?
Does that 3% ownership/interest entitle DAL to percentage of profits gained on the GOL side?
12-08-2011, 07:46 AM
#5
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Joined APC: Dec 2009
Position: 7ERB
Posts: 2,039
With all due respect, I think this deal is a strategic move to outsource and continue to erode the Delta Pilot's future growth and earnings.
GOL pilots are highly underpaid and overworked, thus creating a great benefit to outsource flying to them.
As a business owner and CEO, this would make sense and would be great for a Virtual Money Making Airline/business. And ACL is correct. This would benefit us against AMR. Also it would hedge us/DAL against our looming pilot shortage. Just hand over flying as need be.
As a US based pilot, this is the biggest threat to our livelihood and advancement.
Money will dissolve the so called "rules/regulations" of other carriers flying on our turf. I have a feeling the US airline industry is going to be much eroded like the US maritime industry.
TEN
GOL pilots are highly underpaid and overworked, thus creating a great benefit to outsource flying to them.
As a business owner and CEO, this would make sense and would be great for a Virtual Money Making Airline/business. And ACL is correct. This would benefit us against AMR. Also it would hedge us/DAL against our looming pilot shortage. Just hand over flying as need be.
As a US based pilot, this is the biggest threat to our livelihood and advancement.
Money will dissolve the so called "rules/regulations" of other carriers flying on our turf. I have a feeling the US airline industry is going to be much eroded like the US maritime industry.
TEN
12-08-2011, 08:47 AM
#6
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Joined APC: Jul 2010
Position: window seat
Posts: 12,522
Originally Posted by TenYearsGone
With all due respect, I think this deal is a strategic move to outsource and continue to erode the Delta Pilot's future growth and earnings.
GOL pilots are highly underpaid and overworked, thus creating a great benefit to outsource flying to them.
As a business owner and CEO, this would make sense and would be great for a Virtual Money Making Airline/business. And ACL is correct. This would benefit us against AMR. Also it would hedge us/DAL against our looming pilot shortage. Just hand over flying as need be.
As a US based pilot, this is the biggest threat to our livelihood and advancement.
Money will dissolve the so called "rules/regulations" of other carriers flying on our turf. I have a feeling the US airline industry is going to be much eroded like the US maritime industry.
TEN
GOL pilots are highly underpaid and overworked, thus creating a great benefit to outsource flying to them.
As a business owner and CEO, this would make sense and would be great for a Virtual Money Making Airline/business. And ACL is correct. This would benefit us against AMR. Also it would hedge us/DAL against our looming pilot shortage. Just hand over flying as need be.
As a US based pilot, this is the biggest threat to our livelihood and advancement.
Money will dissolve the so called "rules/regulations" of other carriers flying on our turf. I have a feeling the US airline industry is going to be much eroded like the US maritime industry.
TEN
South/Central America is a massive emerging market especially for air travel. We have grown our mainline in the region and its one of the few areas of the globe we are still growing. But we will end up needing an intra South American alliance of some kind, especially intra-Brazil.
If done right (...if...) an intra-regional network will indeed feed our jets to and from in a way we are not legally allowed to do. Not having an alliance partner in that region is not a path towards massive growth; its a sure fire way to lose in the competitive, global, integrated marketplace.
What I hope we do as a company and certainlly as a pilot group is to get agressive protections on our O&D US traffic. In the case of Gol, I'd say pretty much exclusive rights in the alliance on those routes belong to us. I think I read they only have 2 767's and they are being transferred to us. To any extent our MEC/NC gets a say, I'd like to see a 100% claim of all US-South America flying go to us. Unlike linking up with a true global like Air France/KLM, this is a ground floor opportunity to do so. Any resistance from the company to provide us with at least status quo levels of assurance in that regard should be viewed as nothing short of a hostile act of war going into negotiations.
Some may think that if we ended all alliances and code shares, that we would spring into growth mode and fly to every city in the globe, ordering wide bodies at a rate that would make all the ponzi scheme Asian and Middle East airlines blush. Of course that would never happen. We wouldn't over fly and capacity dump on the entire globe like that; would just lose mass amounts of market share to superior networks.
That's why we need good partnerships. This isn't the 1960's when US airlines were the only way to get anywhere in the world. That shouldn't be our focus anyway. We need to be making sure that the alliances we enter into benefit our pilot group and our airline in a way that protects and increases our jobs.
Look at Air France's route map. AeroMexico's. Aeroflot's. China Southern's. Gol's. Any of them. Even Alaska's. You will see tons of cities we would never, and I mean ever, fly to under any circumstance. Yet tapping into those networks makes ours significantly stronger and helps to fill our planes. Its up to us and our section 1 to make sure its done in a way that benefits us and doesn't harm us.
I'm not against the Air France code share. I'm in favor of it. Big time. We need it or we simply don't compete. I'm not against the Alaska code share. We benefit from it and that's great. Ditto for Gol. What I am against is code share abuses like 2 years of no floor in the AF/KLM code share, or rampant, flagrant, in our faces abuse of the Alaska code share on high frequency high density city pairs that our airline and pilot group is completely shut out from. That is unacceptable and must be fixed or a strike at any price is warranted if necessary. If we sign on Gol and don't get fierce protections on flights to and from the US, probably to the point of exclusivity, then this is a bad deal and we should do everything in our power to make sure this deal benefits us and Delta Air Lines. Not the Virginia Avenue Bonus Monger Mercenary Manager Travel Group. Delta Air Lines.
Adding Gol can be a smart move, depending on how its structured. Cabotage is a threat to work to prevent to be sure. But if it ends up happening, having a good network with pre-existing protections that protect and even favor our pilot group is the best defense we can put up at that point.
Speaking of all this, is the Gol deal one we have to aproove? If so, what protective stipulations are we insisting we get out of it?
12-08-2011, 09:33 AM
#8
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Joined APC: Jan 2011
Posts: 403
Maybe this belongs over here instead of L&G:
Quote:
Originally Posted by TenYearsGone
I would think Delta would lease these "birds" back to GOL. Then GOL will use their lower paid employees/pilots to fly some joint routes.
I cant seem to get the exact figures but Gol pilots do not make a lot of money and they work a whole lot more than their US counterparts.
TEN
^^^^
After reading the latest AWST update on Latin America, I'd say we absolutely needed a partner down there. However, it's unfortunate that our management and union has groomed us to be suspicious, looking for the next way they will try to take away our flying. Could they do something like: pax buys delta.com ticket and flies:
1- DCI RJ from anywhere to ATL
2- GOL 767 from ATL to Sao Paulo
3- GOL 737 to anywhere
I'm just asking...Delta pax with 3 legs and zero on a Delta airplane? If this is contractually possible, I wouldn't be surprised to see a big GOL widebody order sometime in the future. And then ALPA will tell us that Anywhere, US to Anywhere, SA was an unprofitable market for us...we needed all that feed.
Quote:
Originally Posted by TenYearsGone
I would think Delta would lease these "birds" back to GOL. Then GOL will use their lower paid employees/pilots to fly some joint routes.
I cant seem to get the exact figures but Gol pilots do not make a lot of money and they work a whole lot more than their US counterparts.
TEN
^^^^
After reading the latest AWST update on Latin America, I'd say we absolutely needed a partner down there. However, it's unfortunate that our management and union has groomed us to be suspicious, looking for the next way they will try to take away our flying. Could they do something like: pax buys delta.com ticket and flies:
1- DCI RJ from anywhere to ATL
2- GOL 767 from ATL to Sao Paulo
3- GOL 737 to anywhere
I'm just asking...Delta pax with 3 legs and zero on a Delta airplane? If this is contractually possible, I wouldn't be surprised to see a big GOL widebody order sometime in the future. And then ALPA will tell us that Anywhere, US to Anywhere, SA was an unprofitable market for us...we needed all that feed.
12-08-2011, 09:36 AM
#9
No longer cares
Joined APC: Mar 2008
Position: 767er Captain
Posts: 12,109
Originally Posted by FlyZ
Maybe this belongs over here instead of L&G:
Quote:
Originally Posted by TenYearsGone
I would think Delta would lease these "birds" back to GOL. Then GOL will use their lower paid employees/pilots to fly some joint routes.
I cant seem to get the exact figures but Gol pilots do not make a lot of money and they work a whole lot more than their US counterparts.
TEN
^^^^
After reading the latest AWST update on Latin America, I'd say we absolutely needed a partner down there. However, it's unfortunate that our management and union has groomed us to be suspicious, looking for the next way they will try to take away our flying. Could they do something like: pax buys delta.com ticket and flies:
1- DCI RJ from anywhere to ATL
2- GOL 767 from ATL to Sao Paulo
3- GOL 737 to anywhere
I'm just asking...Delta pax with 3 legs and zero on a Delta airplane? If this is contractually possible, I wouldn't be surprised to see a big GOL widebody order sometime in the future. And then ALPA will tell us that Anywhere, US to Anywhere, SA was an unprofitable market for us...we needed all that feed.
Quote:
Originally Posted by TenYearsGone
I would think Delta would lease these "birds" back to GOL. Then GOL will use their lower paid employees/pilots to fly some joint routes.
I cant seem to get the exact figures but Gol pilots do not make a lot of money and they work a whole lot more than their US counterparts.
TEN
^^^^
After reading the latest AWST update on Latin America, I'd say we absolutely needed a partner down there. However, it's unfortunate that our management and union has groomed us to be suspicious, looking for the next way they will try to take away our flying. Could they do something like: pax buys delta.com ticket and flies:
1- DCI RJ from anywhere to ATL
2- GOL 767 from ATL to Sao Paulo
3- GOL 737 to anywhere
I'm just asking...Delta pax with 3 legs and zero on a Delta airplane? If this is contractually possible, I wouldn't be surprised to see a big GOL widebody order sometime in the future. And then ALPA will tell us that Anywhere, US to Anywhere, SA was an unprofitable market for us...we needed all that feed.
12-08-2011, 09:43 AM
#10
Gets Weekends Off
Joined APC: Jan 2011
Posts: 403
T,
I agree. I'm just wondering if this can be implemented unilaterally by the company without us (pilots) even agreeing. I was hoping one of those Section 1 terms I prioritized in the contract survey would at least require us to approve. Alter ego flying, or something like that.
If its that easy to step around our Section 1, all Delta needs is a strong partner in each market and they can literally become a ticket broker. As in zero mainline flights. I must be slow in coming to this realization!
I agree. I'm just wondering if this can be implemented unilaterally by the company without us (pilots) even agreeing. I was hoping one of those Section 1 terms I prioritized in the contract survey would at least require us to approve. Alter ego flying, or something like that.
If its that easy to step around our Section 1, all Delta needs is a strong partner in each market and they can literally become a ticket broker. As in zero mainline flights. I must be slow in coming to this realization!
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