Latam airline merger

Published: August 15 2010 20:48 | Last updated: August 15 2010 20:48

LAN, Tam, thank you ma’am! Global airline consolidation moves on apace, now to Latin America. Chile’s flag carrier LAN Airlines and Tam, Brazil’s number one carrier with 50 per cent market share, have agreed to an all-stock merger worth some $4bn. The new group, to be called Latam Airlines, would almost make the world’s top 10 by passengers.

Seasoned airline watchers, however, will no doubt smile at the youthful enthusiasm of it all. But those who have obeyed the number one rule of investing – never own an airline – would have watched and wept as LAN’s share price almost tripled over the past three years. Even lesser-quality Tam’s stock has matched global equity indices since 2008. On the back of booming regional economies, both airlines have enjoyed growth other carriers only dream of. Between 2000 and 2009, for example, Tam grew revenue-passenger-kilometres at rate three times faster than Brazilian gross domestic product.