April 22, 2013
Three years after the merger of Avianca and Taca, the group is growing profitably, but the integration is not complete and infrastructure bottlenecks have to be cleared to ensure further growth.
Avianca, which will go to a single brand and drop the Taca name at the end of May, has emerged as one of the two big Latin American airline groups, along with the newly formed Latam Group. Given Colombia's politically and economically difficult past, and considering Avianca's bankruptcy restructuring in 2004, the turnaround is all the more remarkable. Following the announced departure of TAM Brazil, Avianca will also be the Star Alliance's sole partner in South America. And Bogota is its most important base.
CEO Fabio Villegas is about to launch the next stage of the group integration that will likely span another 2-3 years. Avianca has “come a long way already,” he says. In its initial integration phase, the airline went to a single administration (most functions are now based in Bogota), merged the frequent-flier programs into the Colombian carrier's “Life Miles,” and introduced joint revenue management and a combined network.
Overall, the first stage of the group building process was about increasing revenues. And it worked: In 2009, the two airlines together carried 15 million passengers; three years later, the figure has risen to 23 million. In the same time frame, revenues grew to $4.2 billion from $2.5 billion. The integration had a positive $219 million impact on operating profit even before specific cost-saving initiatives were launched.
AviancaTaca Holding recorded an 8.3% increase in sales in 2012, reaching 7.6 billion Colombian pesos ($4.2 million), and achieved an operating profit of 506 million Colombian pesos. Both capacity and demand grew by 10.3% last year.
Now Avianca is about to launch the second integration phase, in which it hopes to save another $150 million. While the two entities will continue to exist as separate companies (although operated under a single brand), Villegas wants to introduce more joint processes in operations and maintenance and harmonize the two airlines to allow quick reallocation of aircraft and crews where needed. An outright merger into one carrier with a single air operator's certificate is deemed unrealistic given the different jurisdictions in which it has to work.
Integration efforts are not limited to the Taca operation. Avianca has taken full control of Ecuador's Aerogal, which operates a dense domestic network and has some limited international exposure following the phase-out of its Boeing 767 operation last year. Aerogal will eventually also become part of the Avianca brand, once its information technology infrastructure is upgraded.