Podcast: Why So Many Airlines Are Focused On The South Transatlantic Market

Listen in as editors explore how airlines on both sides of the Atlantic are adapting their strategies to tap into growing demand for travel between Europe and South America, including how M&A could play a key role in shaping the next phase of South Atlantic competition.

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Karen Walker: Hello everyone and thank you for joining us for Window Seat, our Aviation Week air transport podcast. I'm ATW and Aviation Week Network air transport editor-in-chief Karen Walker. I am delighted to welcome you on board. So, we all know, and we editors constantly cover, the all-important transatlantic market, but what tends to get a lot less attention is the south transatlantic market between Europe and Latin America. But it has to be said that right now it's the southern half of the transatlantic market that is looking most interesting and dynamic.

You have major European airline groups looking to strengthen their presence in this market, either through mergers, acquisitions, partnerships, or straight-out expanding routes into South America. And then you have Latin American carriers seeking to leverage their regained strength as they come out of restructurings and to take best advantage of growth opportunities. While the south might not yet be on a par with the historic north transatlantic market, it is gaining strategic importance fast, and that is the subject of the next cover story in the ATW magazine. And so, it's what we'll be discussing now and joining me in that discussion are my colleagues and air transport experts: David Casey, editor-in-chief at Routes; Aaron Karp, Routes and ATW senior editor; and Lori Ranson, CAPA senior analyst, the Americas.

David and Aaron authored the ATW cover story that I mentioned, while Lori closely follows and reports on the Latin American market and will be presenting and moderating at the CAPA Leader Summit Latin America in Lima, Peru, in early September. So, David, Aaron, Lori, welcome. Thank you for joining me today. Let's get straight into that discussion. David, please can you kick us all off with some of the most intriguing things that are going on in this quest to grow presence across the South Atlantic. I'm particularly thinking about the interest in acquiring a stake in TAP Air Portugal, for instance, but there's certainly a lot going on right now.

David Casey: Yeah, thanks Karen. Absolutely, there is a lot going on. As you said, the South Atlantic doesn't always get the same level of attention as the North Atlantic, but there's a lot of movement in this space and TAP is at the center of it. So, we're seeing increased competition, we're seeing steady on year-on-year capacity growth and we're seeing more interest from Europe's big airline groups in strengthening their position on some of these routes. So just to give a bit of context about the market, if we look at the summer 2025 season schedule capacity on Europe-Latin America routes will be about 3% higher than last year and that's been driven by strong demand from VFR traffic and from leisure travelers as well. But the market is still very much a European stronghold. I'm based in the UK and carriers from this side of the Atlantic operate about 75% of the total capacity.

And at a group level, IAG, which is the parent of Iberia and Level, controls about an 18.9% share of that just ahead of Air France-KLM on 17.7% and Lufthansa is a bit further behind on about 6.4%, but all three of these European groups clearly see room to grow, especially given that the North Atlantic is increasingly competitive and some of the long-haul routes to Asia are still being complicated by Russian airspace restrictions and instability in parts of the Middle East, which has led to airspace closures. So, I think that the South Atlantic is moving up that strategic agenda and what makes it particularly interesting now is that potential shift in airline ownership, as you say. So, it's been rolling on for a few years, but the Portuguese government looks to be finally moving ahead with a partial privatization of TAP Air Portugal. Alongside that, you've got Spain's Globalia, which is actively seeking investors for stake in Air Europa, which operates out of Madrid.

Now these two aren't huge carriers in terms of size, but they do punch well above their weight in the South Atlantic market. So, TAP in particular is the standout. It has about 25% capacity on Europe-Brazil routes, and that puts it ahead of LATAM, Air France and Azul as it operates into major hubs like São Paulo and Rio, but also connects to secondary destinations such as Recife, Fortaleza and Manaus, and it's been used in its fleet of Airbus A321LRs to serve some of those thinner routes, which is opening up new city pairs and improving connectivity. Another benefit of TAP is the geographical advantage that it has from its Lisbon hub. It's the most westly hub in Europe. Flight times to Latin America are shorter and it's got an extensive slot portfolio in Lisbon, which is usually valuable given the airport slot constraints. And the fact that a new airport in Lisbon is still probably over a decade away from opening.

And beyond Brazil as well. it connects well into Portuguese speaking countries in Africa. It's got a transatlantic presence North America and a strong European network. Financially it's in good shape as well. I was looking at the figures and I think it posted an EBITDA of 875 million euros in 2024, record revenues of 4.2 billion euros. So, I think it's unsurprising that now it is back on the market. We are seeing interest from IAG, Air France-KLM, and Lufthansa, which have all publicly said they are interested in buying a stake in the airline. I should just mention Air Europa too, which is also attracting strong interest. It is smaller than TAP, but it accounts for about 8% of South Atlantic seats and it's got a real strength from Madrid to Spanish-speaking markets. I think it serves about 20 destinations in Latin America and the Caribbean and it has got a big slot portfolio in Madrid as well. So, I think for any airline group looking to strengthen its position in the South Atlantic, both of these airlines are really compelling assets that are on the table. They've got strong networks: TAP in Brazil, Air Europa in Spanish-speaking countries, and if you combine that with the footholds in Lisbon and Madrid, respectively, I think it's easy to see why the big players are circling and why this market is one that is really dynamic at the moment.

Karen Walker: And certainly depending on the outcome could make major changes in the market overall. I'll just mention one thing. You quite rightly pointed out that IAG is the parent of Level and Iberia, of course is also the parent of British Airways and Aer Lingus, so another major organization there.

Aaron, can I turn to you and in particular ask about Brazil? Why are Brazil and Brazilian airlines so important in all of this?

Aaron Karp: Well, I think that the main thing to say about Brazil or the most important thing to say about Brazil in terms of airlines is that the per capita airline trips for Brazilians is less than 0.5. And so that's even low for Latin America. It's one-fourth of the US, like one-seventh of Spain. And so as a result, they're seeing as a tremendous growth opportunity in the Brazilian market, not just from São Paulo and Rio de Janeiro, which everyone knows about, but for example, Azul Brazilian Airlines, they run their South Atlantic freights from Campinas and right now they're flying to Lisbon and Paris Orly and they just started flying to Porto. And right now, Brazilians traveling to Europe—the main destination of course is Portugal and then Spain and then France. But there's a thought, and if you listen to what Azul has said and the other Brazilian carriers have said that there are other cities in Europe that they could go to that perhaps going to Italy, perhaps the UK, that they can keep expanding.

And so I think that that's the thing about Brazil is it's this huge country with all sorts of cities, all sorts of possible connections beyond just São Paulo and Rio de Janeiro, which are huge markets and very important markets, and I think it's just the enormous growth potential of Brazil that really attracts European airlines to wanting to fly there and makes Brazilian airlines believe that they can really ramp up flights on the South Atlantic because there's such a growth potential as more and more people in Brazil join the middle class and are able to afford to fly.

Karen Walker: It's interesting. So, it's the classic of where people are seeing, hey, real potential for good growth here and really expanding what's been happening in that South Atlantic market. And of course, it's interesting really with Brazil—it is both a historic aviation market. It's a very large country, historically important. It's got its own airplane manufacturer, of course, Embraer, but it's still an emerging market as well. It's an interesting one.

Lori, can I bring you in here? As I said, you track the whole of the Latin America market very closely. What about some of the other really key regions in that part of the world? I'm thinking Argentina, Chile, Mexico.

Lori Ranson: All three of those countries definitely have potential for growth in the market. I'm just looking at CAPA data from this week. It's just a snapshot, and seats from Argentina to Europe are up about 4%. And of course, Iberia and Air Europa are the big players in terms of seat share, and Iberia is increasing frequency to Buenos Aires and Air Europa is upping frequencies on Madrid, Cordoba, and I think there is a lot of potential for growth. The issue seems to be every time that there is an election in Argentina, there are wild swings in aviation policy. So, some airlines might be waiting to see what happens in the 2027 election, but obviously there's a lot of room for growth in that market. And Chile as well—seats are up 5% this week. Sky and Air Europa have started and interline Level is increasing its Santiago frequency for the winter.

So, Argentina and Chile have a lot of potential. I just think it might be a slower growth trajectory for those two countries in terms of the Atlantic market. Mexico is a little bit different, but I think the focus right now is on Canadian carriers deploying their capacity into Mexico as US demand falls off. But you've got Aer Lingus launching Dublin-Cancun next year. Air Europa has increased its service from Madrid to Cancun. What I think is interesting about the Mexican market is some of these European long-haul carriers may be relying a little bit more on their partners in Mexico to connect through Mexico City and reach some of the destinations that in the future could have higher tourist potential, but right now don't have the demand for direct flights. But I do believe some of the larger leisure markets like Cancun are going to see a lot of growth going forward from the long-haul carriers.

Karen Walker: That's interesting in that what I'm hearing there is that there's the potential growth both in existing big-name cities, big connection points, and belief that there's growth potential for essentially cities that many people have never even heard of, and new routes and that's what always gets airlines excited.

Lori Ranson: Yeah, I mean I think there's a trend just overall in travel. People want to get away from the crowded destinations and they want something that's a different experience. So, I don't see that trend changing very much. I see it growing.

Karen Walker: David, you are based in the UK, of course. So, what are your thoughts on how all of this will play out from a European airline and group perspective?

David Casey: I think as I mentioned earlier, I think the South Atlantic is climbing the priority list for these major European airline groups. If you look at IAG's 2024 figures, RPKs for Latin America and the Caribbean were up by 13%, which when you compare it to the North Atlantic was 5% growth. So, I think passenger numbers are growing as well. They were up 13% to 7.3 million. So, it's clear that the region is growing, and as Aaron and Lori have said, when you consider markets like Brazil with a population of about 210 million people and a low propensity to travel, it becomes obvious that there's still plenty of headroom for that growth. But in terms of how the consolidation will play out, I think each airline group probably comes at it from a different position. For IAG, for example, it's probably about consolidating the existing strength in the market.

Iberia is a clear leader in the Spanish-speaking South America, and it's benefiting from a joint venture with LATAM. Although it has tried and failed to fully acquire Air Europa it still has a 20% stake, and I'm not sure whether that's going to sell it or it'll retain it, but if they were to bring TAP into the fold, even through perhaps a minority stake, I think it could effectively put them in a position where they dominate that South Atlantic market. You'd have Iberia strengthen the Spanish-speaking. You'd have TAP's leading position in Brazil. You'd have two strategically located hubs in Madrid and Lisbon, and I think that would give them a really powerful combination. Air France, meanwhile, is a strong operating into Brazil and into the French Caribbean, but it's perhaps less prominent in Spanish-speaking South America. So, for them I think a stake in either TAP or Air Europa would be a chance to close the gap with IAG and gain a better foothold across the region.

But it does have a lot on its plate right now. It's in the process of increasing its stake in SAS. KLM's undergoing a restructure as well, so that could potentially slow any major move. And then you've got Lufthansa, which is the weakest of the South Atlantic footprint of the three, but it's probably arguably has the clearest incentive to make a move. It's got a strong track record of building through acquisitions, if you think Swiss, Austrian, Brussels Airlines, more recently ITA Airways, and I think a minority stake in TAP would instantly boost its presence in Latin America and as well secure an existing Star Alliance partner. However, that said, it's going through an integration process with ITA, and so is capacity for another acquisition limited? I'm not sure, potentially though all this is complicated by Turkish Airlines entering the fray. So, we reported on Aviation Week a few weeks ago that they are in discussions about potential stake with Air Europa, which would again give them a foothold of Madrid and a springboard into Latin America where it's got quite a limited share at the minute.

I think it's early days, they haven't really said what size of stake they want to take, but I think even the suggestion of Turkish entering the conversation could potentially force the hand of one of the major European groups to actually move quicker and state its intentions. In terms of how it'll play out, I think we'll probably see one, perhaps both of the stakes in TAP or Air Europa ending up with one of the three big airline groups potentially before the year’s out. Regulation could be a factor, particularly given the European Commission decided to block IAG's full acquisition of Air Europa, but even a minority stake in any of those two airlines would tip the competitive balance on what is becoming a really much more contested South Atlantic market.

Karen Walker: It's interesting. I think wherever this goes, those that don't get a stake here will be concerned, and that in itself is interesting. I think it also has implications for the global alliances because it shifts things again in terms of Star and SkyTeam and oneworld in terms of what they're able to offer members across those alliances. So, it's going to be interesting.

Aaron, can I ask you a similar sort of question from the Latin America carrier and group perspective and then bring Lori into this as well? Several of the carriers in Latin America have recently undergone restructuring mostly via the US chapter 11 process. Do you think that's helped them as they look to grow internationally?

Aaron Karp: Yes. I think they feel like they're coming out of that much more stable and that stability gives them an opportunity to grow. One thing that that is quite interesting is that Joe Mohan, who's the CCO of Abra Group—and Abra Group is the parent of Colombia's Avianca and Brazil's GOL—he noted at the Routes Americas conference down in the Bahamas that you and David and I were at earlier this year, he noted that more than 50% of all bookings to and from Latin America are point of origin Latin America, meaning that while the European carriers have 75% of the market, that doesn't mean 75% of the people are coming from Europe. It's really about even. So, if they could convince those people that are booking on the European carriers to fly South Atlantic to fly on the Latin American carriers without even creating new demand, that would be a huge boost for them.

One thing that Abra did is last year they acquired Wamos Air, which is a Spanish wet-lease carrier, and that immediately put 10 new [Airbus] A330s into their lineup, into their fleet, which are planes that can fly across the Atlantic. And so, I think you listen to what LATAM has said, what Abra has said, the demand across the South Atlantic is strong. In fact, it's doing better right now than the demand between North and South America, which is a strong suit, a traditional strong suit for the Latin American carriers. So, I think the key they see is that yes, they can generate growth as we talked about with new passengers entering the middle class and wanting to fly, but also there are already people flying, already Latin Americans flying, and they're just instinctively booking on TAP or Iberia or the European carriers. Whereas the Latin American carriers, if they can have more financial stability, if they can grow their widebody fleets, they can convince them to fly on the Latin American carriers. And so that would immediately be able to get that share up from just 25% of the South Atlantic to much closer to 50% when in reality the people traveling back and forth are already 50%.

Karen Walker: Yep. That's fascinating. Abra is a very interesting group being very strategic right now, and they clearly have ambitions to sort of be the, I don’t know, the IAG of Latin America in terms of sort of an airline holding company. Lori, can I just ask you on that point too, do you think where Latin American carriers stand right now post-restructuring that they are in maybe the best position they've ever been to grow internationally?

Lori Ranson: Yeah, they're in a very strong position. And one thing I think it's important to mention, both LATAM and Avianca are focusing on their products and product consistency and more premium products. So that could actually improve their competitive advantage against some of the European carriers that have some product consistency. And I think that LATAM has stated that its premium product did very well during the first quarter. So, I think that's something that the carriers are focusing on and being in a better financial position allows them to introduce more premium products. I think where the challenges, and Aaron kind of alluded to this, but the widebody shortage, the widebody aircraft shortage, and so you have to have the right product and schedule to capture that customer base, and I think that's going to be a challenge going forward.

Karen Walker: Good point. Very good point. I'm going to just quickly put all of you a little against the gun here. I'm going to just ask each of you very quickly. If you were betting people, who would you bet on coming out winners in this ongoing fight if you like to gain dominance in the South Atlantic market? David?

David Casey: It's a good question. I think if I was putting money on it, I think I'd probably say IAG. As we've said, Iberia has got a commanding presence. It's growing frequencies. As Lori said, it's got a joint business with LATAM that's allowed it to deepen its reach. And I think if you look at some of the carriers within the group Level's forecasting growth of 38% this winter, and I think we could even see Iberia potentially opening up some previously unserved city pairs and thinner routes using the XLRs that are going to come into its fleet. If it does manage to bring TAP into the fold, either through a minority stake or ultimately full ownership, I think you'd have one group that is controlling two major South Atlantic hubs, Madrid and Lisbon. I think IAG as well has got scale and experience on its side. It's a group that knows how to integrate and grow airlines, as we've seen with Vueling and Aer Lingus. I suppose it does tend to go for full ownership, so if the Portuguese government insists on keeping 51%, it could become a sticking point. But I think if I was a betting man, IAG would be the one that is probably going to be the dominant player going forward.

Karen Walker: Thank you. Aaron, where would you put your chips?

Aaron Karp: Well, I think as we discussed, the European carriers have the advantage right now, but I think if you look at LATAM and Abra and even Azul and what they're doing, they're focusing now on this South Atlantic market. They're trying to build up their fleets. As Lori said, they're trying to put a product together that's equivalent or on par with what the European carriers are doing. And so, I think you'll see that percentage, the 75-25 split we talked about, I think you'll see that start to change and it move closer to 50-50, maybe not 50-50 but closer to there. And I also think one thing worth mentioning is that TAP has said that one of their issues is that Lisbon is a very congested market. They can only expand so much out of Lisbon, and they're thinking of moving more services to Porto and trying to grow Porto more.

But there may be a little more room for the Latin American carriers to grow because the European airports are so slot-constrained. And so that may be one area where the Latin American carriers have an advantage. I think it's not necessarily actually a direct all zero-sum game in that there's a lot of interline and codeshare agreements between the Latin American carriers and the European carriers. So, we talked about LATAM and Iberia, and so really the European carriers are trying to feed traffic into a place like São Paulo or Buenos Aires and then have the Latin American carriers pick it up through a codeshare, and so they could both grow together. So, it's not necessarily this hardcore competition in that they both want to grow. They both want to have connections. The Latin American carriers want to fly into Lisbon and then have the Latin American travelers move on to other cities in Europe. So, I do think that David is right in that IAG and any carrier that can get a stake in TAP has a real advantage here, but we shouldn't overlook the Latin American carriers and their potential to grow in the South Atlantic.

Karen Walker: Lori, last word to you. Who are you betting on?

Lori Ranson: I think in the short term it's IAG, and IAG is the best position to act on the short term because as everyone mentioned, Air France-KLM is focused on other integrations and SAS, as is Lufthansa. But hey, I'm going to throw this out there. Do you think Abra would throw its hat in the ring for TAP?

Karen Walker: Yeah, I think you've got a very good point there. What is interesting though, with all this discussion about IAG of course, is IAG, particularly British Airways is very, very strong in the north transatlantic market. So, it's all going to be very, very interesting how this develops. David, Aaron, Lori, thank you so much for joining me today in that great discussion. A reminder to our listeners that you can read more about this fast-changing south transatlantic market in the ATW cover story, which we'll post next week on aviationweek.com/atw. Thank you also to our producer Guy Ferneyhough, and of course, a huge thank you to our listeners. Make sure you don't miss us each week by subscribing to Window Seat on Apple Podcasts or wherever you like to listen. This is Karen Walker disembarking from Window Seat.