Last April, Colombia’s flag carrier Avianca announced a merger agreement with Viva, one of the country’s most important low cost airlines. The merger was touted as a synergistic move to overcome the sector’s problems following the Covid-19 pandemic, which led to the restructuring of Avianca after it emerged from bankruptcy at the end of 2021. Both companies vowed to keep their own brands and business strategies but the regulator is having none of it.
In early November, Aerocivil, the civil aviation authority of Colombia, rejected the merger deal considering that it posed risks to competition in the sector and consumer welfare. Aerocivil emphasised that both companies currently participate in 59 routes which account for 93.7% of Colombia’s internal domestic air traffic. Additionally, the holding would have a 100% participation in 16 routes.
A former regulatory executive, familiar with Aerocivil, commented, “Aerocivil has political and technical views. It is important to recognise that Aerocivil is a Conversative Party fortress and some of its previous decisions have been very political in the past. However, in this instance, I believe it is a technical decision based on sound market economics analysis.”
For the deal to progress, Avianca and Viva need to propose alternatives and make business commitments to identify, isolate, and eliminate anticompetitive outcomes resulting from the merger. Both airlines are currently working on these proposals, and they have already appealed the decision while making the commitment to yielding certain routes to competitors. This would include reducing operations from the Bogotá international El Dorado airport and cooperating with SATENA, the state-owned airline carrier to strengthen connections to the country’s most remote regions.
“I believe these are important and necessary concessions but they don’t cover all of the regulator’s concerns.”
Airline executive, Colombia
A Colombian airline executive felt that Avianca could have done more to allay the concerns of the regulator, “In response to the regulator’s concerns, Avianca has proposed to maintain the Viva brand, protect the low-cost model and jobs, protect fares on certain routes where they would have 100% market share, allow other airlines to take their slots at El Dorado airport and maintain the interline agreements. I believe these are important and necessary concessions but they don’t cover all of the regulator’s concerns. For example, Avianca did not explain well enough that Viva Air’s acquisition was less harmful than the possibility of its withdrawal from the market. It did not demonstrate that if Viva Air was not acquired then it would be forced to leave the market; nor did it demonstrate that Viva Air had taken into account other options less harmful to free competition, such as loans with banks, etc.”
Despite Avianca’s proposed concessions, most airlines operating in Colombia strongly oppose the deal, including international carriers with presence in the country. EasyFly, Wingo, Aerolíneas Argentinas, LATAM Airlines, JetSmart Air Europa and Lufthansa have requested to participate in the process of acceptance or rejection of the integration. Viva replied with a statement which said that the sector volatile environment, rising inflation, and the devaluation of the local currency are putting in danger their current operations, as proven by the recent suspension of some of its routes.
“There is strong pushback against the proposed merger with several airlines are involved in the process as interested third parties.”
Airline executive, Colombia
The airline executive explained why he believed the proposed merger was unlikely to progress, “There is strong pushback against the proposed merger, several airlines are involved in the process as interested third parties, indicating significant concern about the integration creating a monopoly. The airlines formed a common front where they hired Emilio Archila and Jorge Enrique Sánchez to consolidate the arguments that would allow them to oppose the integration. Then, Ultra Air filed a popular action where it was mainly mentioned that Avianca and Viva Air had already carried out the merger before the Aerocivil had even pronounced on the matter.”
With such high levels of market resistance and regulator concern it appears that, without significant new evidence or further concessions, the proposed merger of Avianca and Viva Air is unlikely to go through.