DAVID KNIBB SEATTLE
Rejection of the proposed Avianca-ACES Colombia merger has prompted Colombia, like Mexico, to debate the different demands of domestic and international airline competition.
The situation in Colombia is similar to that in Mexico, where the House of Delegates is deciding whether to block Cintra's break-up and the separate sale of Aeromexico and Mexicana. In both cases, competition officials have ruled that merging local airlines has damaged or threatens to damage local competition. Conversely, other officials argue that a strong domestic base is needed for these airlines to compete effectively in an international arena against giant carriers from the USA and Europe.
Emilio José Archila, Colombia's superintendent of industry and commerce, rejected the Avianca-Aces merger after reviewing their domestic market shares and evaluating how a merger would affect competition on major domestic routes. Mexico's competition commission went through the same analysis last year, leading it to conclude that Cintra had become a monopoly that needed to be split.
Both agencies acknowledge that international service raises different issues because of foreign competition. Officials from Mexico's competition commission have said they would not oppose joint international flights by Aeromexico and Mexicana. Colombia's Superintendent Archila adds: "If the [Avianca-Aces] merger were only on international operations, our attitude might change to a more positive one."
But examples of domestic rivals co-operating with each outside their home country are scarce.TAM and Varig in Brazil have been discussing it, LanPeru and TacaPeru may codeshare on the Lima-Miami route, but Aeropostal's recent cancellation of its alliance with Avensa on flights beyond Venezuela illustrates how fragile these pacts can be.
Avianca and Aces have appealed against the decision preventing their merger, arguing that Colombia's poor international image has frustrated their efforts to form international alliances or to attract overseas airline investors. They cite talks between Avianca and American Airlines and between Aces and Continental Airlines as examples. Because these failed and because Avianca faces financial distress, a domestic alliance is their only salvation, they say.
A decision on their appeal is due this month, about the same time as Mexican lawyers hope to resolve their differences over Cintra. In the meantime the debate continues. Speaking about the Avianca-Aces case, Colombia's commerce minister Martha Lucía Ramirez, says: "In a global environment, mergers are necessary to stay competitive and Colombia is part of a globalised economy."
Source: Airline Business
