American Airlines to buy JetSmart stake and expand South America flights

American Airlines Group Inc. agreed to buy a stake in JetSmart Airlines SpA, a privately held, low-cost carrier based in Chile, and establish a partnership that the larger carrier hinted could open the door to additional deals with other discounters operated by Indigo Partners LLC, Bloomberg reported.

American will spend an undisclosed amount for an unspecified minority stake in JetSmart, one of several airlines owned by Bill Franke’s Indigo, the carriers said Thursday. Terms of a letter of intent are being worked toward a final agreement, which also is subject to reaching definitive language and receiving government and regulatory approvals.

“We believe this is a model which, done right, can scale across the continent and to other places around the world,” Vasu Raja, American’s chief revenue officer, said on a call with reporters, without directly addressing other Indigo carriers. “But we need to walk before we can run and make sure we deliver to customers right here and right now. We are really excited for what this can turn into beyond this.”

Under the pending agreement, American and Indigo Partners would agree to jointly provide additional funds for “potential future opportunities in the region” that weren’t disclosed.

Indigo holds a majority stake in Frontier Group Holdings Inc., the parent of Frontier Airlines; Hungary’s Wizz Air Holdings Plc and Mexico’s Volaris. Franke is Indigo’s managing partner as well as chairman of Frontier.

A codeshare, or marketing, alliance will join American’s extensive long-haul international network from the U.S. to South America with JetSmart’s short-haul, low-fare routes to 33 destinations mostly in the western half of the continent, allowing passengers to travel seamlessly throughout the Americas. Customers will be able to earn and use miles in American’s AAdvantage loyalty program on JetSmart flights.

American also has a partnership and codeshare agreement with Brazil’s Gol Linhas Aereas Inteligentes SA. www.bloombergquint.com