American plans to invest in a budget airline based in Chile

DALLAS — American Airlines plans to invest in a Chilean budget airline and sell seats on each other’s flights to help American extend its reach in South America.

American said today that it has signed a letter of intent for the deal with JetSmart. American executives declined to say how much the airline proposes to invest in JetSmart other than describing it as a minority stake.

If the companies close the deal and win government approval, travelers could earn and spend American frequent-flyer points on JetSmart flights.

Vasu Raja, American’s chief revenue officer, said the deal would let both airlines grow profitably throughout Latin America as the travel industry recovers from the pandemic. He said two-thirds of passengers on American flights to and from South America start in South America, and the deal will give them more flight options.

JetSmart was founded in 2016 and has just 20 planes, although it has 79 more on order. It specializes in short hops among 33 destinations in South America, mostly in Chile and Argentina. JetSmart overlaps with American in a half-dozen cities including Buenos Aires; Santiago, Chile; and Bogota, Colombia.

JetSmart is one of several low-cost carriers controlled or partly owned by U.S. private equity firm Indigo Partners. Others include Denver-based Frontier Airlines, Mexico’s Volaris and Hungary’s Wizz Air.

American has struck deals in South America before. Its longtime partnership with the continent’s biggest airline, Latam, collapsed in 2019 when Delta Air Lines swooped in to make a $2 billion investment in the Chilean carrier. After the pandemic crushed air travel in 2020, Latam filed for bankruptcy protection in the U.S.