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Air France-KLM is mulling ways to expand its presence in South America and may pursue an acquisition of TAP Air Portugal.
According to Airline Weekly, the potential deal is part of a wave of European-based airlines looking for ways to grown outside the continent.
During an earnings call earlier this month, Air France-KLM CEO Ben Smith highlighted his company’s interest in TAP: “TAP has a very strong position geographically at the southernmost point in Europe towards South America, and they do have a very strong network to Brazil with 11 cities online nonstop out of Lisbon. So it’s very interesting, and could be potentially eventually accretive to our bottom line performance.”
No formal talks have begun and closing any such deal would be complicated.
The process can’t start until the Portuguese government officially indicates that TAP is for sale. However, Portugal has previously said publicly that it is likely to initiate a full or partial sale of TAP as part of a move toward privatization, according to BFM.
The deal follows a turbulent few years for TAP. While all airlines suffered massive business downturns during the pandemic, TAP was on the verge of total collapse. The Portuguese government stepped in and nationalized the airline via an aid package valued at €2.25 million.
The European Commission approved the move, but with the condition that the airline undergo a massive restructuring. This led to large cuts in employees while also giving up some of its gates at the Lisbon airport, allowing European competitors to grab a bigger share of its home market.
Now the government is looking to unload TAP and place it back in private ownership. Smith speculated that such a move could happen within a few months. If the valuation is right, Smith said Air France-KLM would pursue TAP.
Still, it’s not alone. The move to possibly privatize TAP has also reportedly drawn interest from Lufthansa and IAG (British Airways) airlines.
Air France-KLM project that its passenger levels in 2023 would be about 95% of what the airline saw in 2019, an indication that the industry continues to recover but has not fully regained all the business lost during the pandemic.
However, as international travel patterns return to historic norms in the wake of the pandemic, South America is emerging as a profitable destination. During the earnings call, Air France-KLM reported that South Atlantic travel revenues are up 33% compared to 2019 while seats sold are down 4%.
Currently, Air France-KLM has a 21% market share of flights from Europe to South America, based on data from Diio. A merger with TAP would increase that share to 29%. At the moment, the airline relies on a patchwork of partnerships to help augment its Latin American flights.
Air France-KLM is in a strong position to pursue acquisitions because it has paid back all the aid it has received from the French government. In addition, the airline is forecasting that strong demand for premium travel this summer will help it meet revenue targets sooner than originally expected.
