Colombia rejects merger of Avianca and Viva

Colombia’s civil aviation authority rejected the proposed merger between Avianca and Viva, saying it poses a risk to competition and consumer welfare. According to Avianca, this rejection does not represent a blow to the plans of Abra Group Limited, a holding company which plans to include these two airlines plus GOL Linhas Aéreas in Brazil.


Merger Rejected

On Tuesday, the Colombian company Aeronáutica Civil announced that it had concluded that the integration between Avianca, Viva Colombia and Viva Peru “presents risks to competition in the sector and the welfare of consumers.” She added that if the proposed integration were permitted, it would generate or enhance market power in favor of the integrated entity.

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On August 8, 2022, Avianca and Viva submitted their integration plan, stating that the merger was essential to enable Viva’s survival as the airline was facing financial pressures due to global economic uncertainty.

The merger between Avianca and Viva is unrelated to Avianca’s plan to launch a larger South American holding company called Abra Group Limited, the Colombian said in a statement. This holding company plans to join Avianca and GOL Linhas Aéreas (plus Viva Colombia and Viva Peru, under the Avianca umbrella and a small minority stake in Sky Airline in Chile), and the shareholders are looking to move this project forward. The airlines will keep their brands and identities separately.

Two Avianca planes

Photo: Getty Images.

Why was it rejected?

Aeronáutica Civil gave seven reasons for rejecting the merger between Avianca, Viva Colombia and Viva Peru.

The first of these reasons is that the integration would only strengthen the market power of Avianca and Viva. These two carriers currently participate in 59 domestic routes, mobilizing 93.7% of the country’s domestic traffic.

In addition, this holding would have a 100% stake – essentially a monopoly – on 16 domestic routes. Aerocivil said that “in terms of free competition, (the merger) would mean a step back and a return to levels not seen in the country for more than seven years” because Viva has boosted competition in the sector, becoming a valuable alternative for regional consumers, and the merger would mean its demise as an independent competitor.

In recent months, several airlines – led by ultra-low-cost competitor Ultra Air – have raised their voices against the merger.

If they want the merger to be approved in the future, Avianca and Viva must offer solutions and commitments that identify, isolate or eliminate the anti-competitive effects of the integration.

A Viva plane

Photo: Getty Images.

What do Viva and Avianca say?

Viva issued a statement on Tuesday saying it was surprised by the decision taken by Colombia’s civil aviation authority. The carrier added that integrating the two companies would have meant “backing the sustainability of the low-cost model in the region.

The airline, headed by Félix Antelo, will examine the alternatives presented by the Colombian authorities. In the meantime, the airline will continue to operate, as it has done for the past decade, despite the economic uncertainty currently affecting its business.

Avianca expressed concern about the decision taken by the Colombian authorities. He added that the request was aimed at protecting passengers and jobs, by strengthening connectivity in the country. Adrian Neuhauser, President and CEO of Avianca, said:

“We are concerned about the direction of the decision, as it runs counter to the needs of the country and ignores the potential effect Viva’s demise would have on users and the market. From Avianca, we reiterate our willingness to participate actively in the rescue of Viva, seeking to maintain connectivity for travellers, boost tourism and preserve formal employment.”

Did you expect Colombia to reject the proposed merger of Avianca and Viva? Let us know in the comments below.

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