It has never been easy to be an airline in Latin America. High taxes and fees, heavy regulation and lack of infrastructure have long been the status quo in many of the region’s countries, along with political and economic upheavals that hop from one nation to another.
The region has had its aviation successes, nevertheless. Consolidated flagships, most noticeably LATAM, have forged equity partnerships with US and European carriers (in LATAM’s case, cash-rich Delta Air Lines), and LCCs and ultra-LCCs have proliferated, moving into markets previously wholly controlled by bus companies. Panama-based Copa Airlines has long been held as a standard bearer for how far Latin American carriers could go if they had aviation-supportive governments.
All that has crumbled under the COVID-19 pandemic.
As country after country failed to respond to increasingly urgent pleas for financial aid, big industry names headed to US Chapter 11 bankruptcy courts. Aeromexico, Avianca and LATAM were left with no other option. The Chapter 11 process is no guarantee of survival and even if successful, severely restricts how the restructured airlines will be managed, but it keeps creditors at bay. The home countries of these airlines did little to nothing to help them survive the revenue crash, even as they closed borders. As of mid-June, a mere $300 million in airline aid had been provided across all of Central and South America, compared to $66 billion in North America and $30 billion in Europe.
Most surprising of all is Panama’s response. That tiny country’s pro-aviation stance, leveraging its central geographic location, allowed Copa to become the Americas’ No. 1 connector between north and south, east and west. But Copa has no domestic market and the country has shut down, forcing it to ground its 180-aircraft fleet, for which Panama Airport is charging storage fees.
Argentina not only closed its borders in March but forbade the sale of any airline tickets—domestic or international—until Aug. 31. Other countries have similarly shut their borders or issued restrictive quarantine conditions that essentially shut down their airlines.
With no ability to generate revenue, and with most airlines in the region having no more than two months’ cash liquidity, the need for government financial aid and for relief from surcharges and fees has become increasingly urgent in the weeks from March to July. By end of June, the region had also become the COVID epicenter, making an awful situation disastrous.
Latin American carriers will see a $4 billion loss in 2020, IATA estimates. Each month the European Union remains closed to Latin American and Caribbean arrivals costs $300 million in lost ticket sales, and more than 4 million jobs directly tied to air transport and tourism are at risk.
“We are calling on governments not to abandon the industry that is key to their countries’ recovery,” IATA regional VP-the Americas Peter Cerdá said in early July. “Too many governments are dragging their feet on implementation. Many more airlines will have to use Chapter 11.”
COVID has thrown a glaring light on what has long been the case: Latin America was already in a very challenging environment. Socio-political economic crises, from Chile to Brazil to Argentina and various Caribbean islands, stifle aviation growth, particularly when governments do not see aviation as a strategic partner. This despite the lack of national rail systems or good highways, in a region where distances are very distant.
“The rest of the world is slowly beginning to open up, but the epicenter of COVID is Latin America and the effects are devastating. Brazil, Peru and Mexico have had aircraft on the ground for two to three months. Chile and Argentina won’t open until September, meaning aircraft on the ground for five or six months. This is part of the reason you are seeing airlines like LATAM and Avianca file for Chapter 11,” Cerdá said.
“We have seen a good deal of consolidation in the region, but in the foreseeable future I don’t see any activity or mergers; it’s all about survivability. There will be a lot of repositioning, like Avianca pulling out of Peru, and going back to basics. What will happen is the LCCs will fill the gaps and others will penetrate these markets, but I think things will come back into place slowly.
“What will be interesting will be seeing what happens in Argentina and Brazil—there will be fewer airlines, even though LCCs are the good news story in Latin America, which brought good growth.”
For those that sought Chapter 11 shelter, the intention is mostly to keep operating. Grupo Aeromexico, the parent company of Aeromexico, Aeromexico Connect and Aeromexico Contigo, said it intends to use the Chapter 11 process “to strengthen its financial position and implement necessary operational changes to address the impact of the ongoing COVID-19 pandemic and create a sustainable platform for the future.”
Aeromexico’s operations will continue, with plans to double the number of domestic flights and quadruple international service in July from June levels. The carrier slashed capacity by 80% year-over-year in the second quarter, and previously forecast plans to operate between 30% and 50% of last year’s capacity in the third quarter.
Colombia’s Avianca Holdings similarly hopes the restructuring of its balance sheet and obligations will allow the carrier to protect jobs and “comprehensively address liabilities, leases, aircraft orders and other commitments.” But the airline will close operations in Peru, saying the decision “supports essential right-sizing efforts and will allow Avianca to renew its focus on core markets upon emergence from its court-supervised reorganization.”
LATAM Airlines Group and Delta, meanwhile, went ahead and signed their long-planned joint venture. Delta completed its acquisition of a 20% stake in Chile’s LATAM in late December.
In Brazil, GOL Linhas Aéreas began slowly reopening bases and restoring a limited number of flights from São Paulo Congonhas and Rio de Janeiro’s Santos Dumont and Galeão airports. Azul is reevaluating its fleet requirements and has opted to defer 59 Embraer E2s that were originally scheduled for delivery in 2020-23.
Optimism has not died.
“The industry will return,” Cerdá said “We have demonstrated, especially in Latin America, how resilient this industry is. It’s a region impacted by natural disasters and political crises and it has always adapted. But we need governments to step up and assure that its carriers can survive and be competitive, and also ensure that international carriers can continue to come into the region.”
–David Casey contributed to this report.
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