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MarketScreener Homepage  >  Equities  >  Euronext Paris  >  Airbus SE    AIR   NL0000235190

AIRBUS SE

(AIR)
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Real-time Quote. Real-time Euronext Paris - 01/27 11:36:57 am
84.36 EUR   -1.09%
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Latin America's airline apocalypse signals a future with weak competition

06/29/2020 | 06:06am EST
FILE PHOTO: Avianca Airlines Airbus A321 plane is seen at the Alfonso Bonilla Aragon International Airport in Palmira

By Marcelo Rochabrun

Bankrupt LATAM Airlines and Avianca Holdings are dramatically retrenching their once grand ambitions amid the COVID-19 pandemic, reducing competition in Latin America as they mull once-unthinkable cooperation with rivals.

Since May, LATAM has exited Argentina, partnered with rival Azul SA in Brazil and cut back domestic operations in Chile, while Avianca has departed Peru.

LATAM is now open to a deeper alliance with Azul, even as the two airlines usually control a combined 60% of Brazil's domestic market.

The scaling back could reshape air travel in Latin America, weakening competition regionally and driving up ticket prices while also helping some carriers survive. The moves show how the industry is already shrinking through attrition, as airlines are too cash-strapped to consider buying the competition.

"More than consolidation, many airlines will disappear," said Eliseo Llamazares, an aviation consultant at KPMG.

Latin American governments increasingly recognize there is a new reality, and have shifted their priorities to keeping local airlines alive instead of attracting new players.

Attrition has also occurred in Ecuador, where TAME shut down, and in Mexico, where Interjet has scaled back.

"If this trend is allowed to continue, connectivity around the region will be affected," said Peter Cerda, vice president for the Americas at IATA, an airline industry group. "Less connectivity means less choice, and less choice usually translates into higher prices."

All airlines in Latin America face some risk of disappearing, analysts say.

Dominant LATAM and Avianca have filed for bankruptcy protection, while auditors for Brazil's Gol Linhas Aereas Inteligentes are seeking to include a formal warning in the airline's financial statements that the carrier risks disappearing.

Azul and Aeromexico have hired restructuring advisers, while Panama's Copa Holdings has not flown since late March, straining its finances.

One airline that could stand to benefit is Chile-based JetSMART, which is considering entering Brazil's domestic market.

JetSMART's expansion is backed by deep pockets at private equity firm Indigo Partners, which also holds stakes in Frontier, Wizz Air and Mexico's Volaris.

Indigo Partners founder Bill Franke told Reuters he expects to look into helping finance Avianca's restructuring. That could bring Avianca closer to JetSMART, keeping the Colombian airline's markets safe from competition. Avianca declined to comment.

'DIVIDING THE MARKET'

If JetSMART expands to Brazil, it would arrive as competition is diminishing. Last year, LATAM and Gol fought to keep Azul from entering a key Sao Paulo airport.

"JetSMART in Brazil would wreak havoc on the current players," said an air industry executive.

But the coronavirus has turned competition into a secondary concern, evidenced by the lack of pushback against the LATAM-Azul code-share.

The code-share "would have been untenable before," said Carlos Ozores, an aviation consultant at ICF.

The current partnership applies only to non-overlapping routes, but LATAM said it is "open to evaluating the possibility of the eventual future expansion of this code-share" to overlapping routes.

"They are dividing the market for themselves," an executive at a rival airline said of LATAM and Azul.

Gol CEO Paulo Kakinoff said code-share agreements - in which two or more airlines publish and market the same flight sharing one aircraft - will reduce air-travel supply, "which will benefit all of us."

The LATAM-Azul partnership has led to speculation about the future.

"It could be the first step for deeper integration, even a merger," said Andre Castellini, an aviation consultant at Bain & Company.

LATAM and Azul deny merger talks, but a source familiar with the code-share talks said it is "possible."

More than mergers, so-called joint business agreements are in vogue. Recently, LATAM signed one with Delta Air Lines Inc, while Avianca, Copa and United have announced a rival one.

The agreements allow for deep route integration, without all the expenses and red tape of an actual merger.

LATAM was born out of the difficult merger of Chile's LAN and Brazil's TAM, which saddled the new carrier with big expenses.

Not long ago, LATAM and Avianca had their planes in almost every corner in Latin America, controlling a combined 60% of the domestic markets in Colombia, Chile and Peru.

But Avianca pulled out of Peru in May, calling the domestic market unprofitable, surrendering to LATAM, which has dominated travel there since the 1990s.

LATAM, in turn, departed Argentina earlier this month after losing an accumulated $350 million since 2012.

What it shows is airlines willing to surrender market share that they fought hard in normal times to maintain.

"To talk about competition in this context makes no sense, this is a fight for survival," Bain's Castellini said. "Airlines are going to prioritize their survival over their market share."

(Reporting by Marcelo Rochabrun in Sao Paulo; Additional reporting by Tracy Rucinski in Chicago and Tatiana Bautzer in Sao Paulo; Editing by Christian Plumb and Matthew Lewis)


© Reuters 2020
Stocks mentioned in the article
ChangeLast1st jan.
AIRBUS SE -1.09% 84.36 Real-time Quote.-5.00%
AZUL S.A. 1.59% 38.91 End-of-day quote.-0.99%
COPA HOLDINGS, S.A. 0.01% 77.4 Delayed Quote.0.21%
DELTA AIR LINES, INC. -2.03% 38.52 Delayed Quote.-2.21%
EURO / ARGENTINE PESO (EUR/ARS) -0.31% 105.4136 Delayed Quote.2.67%
EURO / BRAZILIAN REAL (EUR/BRL) 0.63% 6.5517 Delayed Quote.4.64%
GOL LINHAS AÉREAS INTELIGENTES S.A. 0.83% 22.95 End-of-day quote.-7.98%
GRUPO AEROMÉXICO, S.A.B. DE C.V. 0.00% 6.18 End-of-day quote.-18.15%
LATAM AIRLINES GROUP S.A. -1.55% 1225.3 End-of-day quote.-3.23%
UNITED CONTINENTAL HOLDINGS, INC. -0.82% 40.91 Delayed Quote.-4.62%
US DOLLAR / ARGENTINE PESO (USD/ARS) 0.21% 87.11 Delayed Quote.3.27%
WIZZ AIR HOLDINGS PLC -0.53% 4204 Delayed Quote.-8.33%
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Financials
Sales 2020 47 670 M 57 723 M 57 723 M
Net income 2020 -1 349 M -1 633 M -1 633 M
Net cash 2020 2 237 M 2 709 M 2 709 M
P/E ratio 2020 -51,9x
Yield 2020 0,03%
Capitalization 66 075 M 79 927 M 80 011 M
EV / Sales 2020 1,34x
EV / Sales 2021 1,21x
Nbr of Employees 134 071
Free-Float 74,1%
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Airbus SE Technical Analysis Chart | AIR | NL0000235190 | MarketScreener
Technical analysis trends AIRBUS SE
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Mean consensus OUTPERFORM
Number of Analysts 23
Average target price 99,19 €
Last Close Price 84,36 €
Spread / Highest target 62,4%
Spread / Average Target 17,6%
Spread / Lowest Target -31,0%
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Managers and Directors
NameTitle
Guillaume Faury Chief Executive Officer
René Richard Obermann Chairman
Michael Schöllhorn Chief Operating Officer
Dominik Asam Chief Financial Officer
Luc Hennekens Chief Information Officer
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