Towards the end of 2009, TAM S.A. (TAM) and Argentina subsidiary of LAN Airlines S.A. (LFL) signed the flight codeshare agreement in order to offer more convenience and comfort to passengers wishing to travel between Brazil and Argentina. The agreement goes into effect for flights beginning on January 4, 2010, but passengers can already buy tickets issued through both companies’ reservation systems.
The agreement will allow TAM to use its own code to sell flights operated by LAN Argentina to the cities of Bariloche, Comodoro Rivadavia, Cordoba, Mendoza, Rio Gallegos, Salta and Ushuaia. For its part, LAN Argentina will also have the rights to sell TAM flights departing from Sao Paulo and Rio de Janeiro to different Brazilian destinations.
In addition, TAM and LAN Argentina hold a codeshare agreement for flights between Sao Paulo (Guarulhos) and Buenos Aires (Ezeiza). The agreement enables passengers to benefit from a simplification of flight reservations, convenient connections and a single airline ticket and baggage check until the final destination.
A stronger Brazilian real will make international travel more affordable for passengers. However, there is a growing concern that the liberalization of international flight tariffs in Brazil may lead to a 50% drop in passengers’ airfare in the following quarters.
Airlines all over the world are facing difficulties, primarily due to the collapse of the global economy. Declining business and leisure travel of the passengers are affecting airlines’ business to a larger extent.
Moreover, the growing competition in the Latin American airline industry is a source of concern. Furthermore, we do not expect a significant recovery in the global airline industry even in 2010. Thus, we reiterate a Neutral recommendation on TAM shares.
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