By Tracy Rucinski
CHICAGO (Reuters) - American Airlines (NASDAQ:AAL) said on Thursday it is proposing acquiring a minority stake in budget carrier JetSMART in South America as part of a tie-up aimed at fueling growth in the region as demand recovers from the COVID-19 pandemic.
Texas-based American, the largest U.S. operator of flights to South America, did not disclose the size, price or timing of the proposed investment in private-equity-owned JetSMART, which operates primarily from Chile and Argentina.
The proposal follows an abrupt end to American's partnership with Chilean-based LATAM Airlines (OTC:LTMAQ) when rival Delta Air Lines (NYSE:DAL) launched a surprise acquisition of a 20% stake for $1.9 billion in 2019, forcing American's search for a new partner.
"This proposed investment in JetSMART would give customers access to the largest network, lowest fares, and best travel loyalty program in the Americas,” said Vasu Raja, American’s chief revenue officer.
The deal would help JetSMART expand its ultra-low-cost business model across South America and enable American to grow its long-haul network thanks to wider connecting options in the region.
"By connecting and growing our respective networks, and maintaining our distinct business models, we see a compelling value proposition," said JetSMART Chief Executive Estuardo Ortiz.
Passengers who fly on JetSMART within South America would be able to earn miles with American's loyalty program.
American inked a similar deal with New York-based budget carrier JetBlue Airways (NASDAQ:JBLU) last year and does not rule out deals with other ultra-low-cost business models.
"There's a lot about this partnership that can scale," Raja told journalists, while adding, "But we need to walk before we can run."
JetSMART is owned by Phoenix-based Indigo Partners, which was founded by no-frills-airline tycoon Bill Franke and whose other investments in low-cost carriers include Wizz Air in Europe, Frontier Airlines in the United States, Volaris in Mexico, Philippines-based Cebu Pacific and Canadian start-up Enerjet.