LATAM Exit From Argentina Shows Harsh Market Reality
LATAM Airlines Group’s decision to indefinitely exit Argentina’s domestic market reflects the tough conditions the country’s remaining airlines face, and there is a distinct possibility state-owned Aerolineas Argentinas could be the last carrier standing.
Argentina has been firmly entrenched in a recession during the last couple of years but despite the economic weakness, the country posted domestic passenger growth of nearly 13% year-on-year in 2019, with 16 million traveling on domestic routes, according to data from the country’s National Civil Aviation Administration (ANAC).
LATAM Airlines Argentina last year was the country’s second largest domestic carrier as measured by passengers carried, with a 16% share. Aerolineas Argentinas was the market leader with a roughly 63% share. Low-cost operators Flybondi, Norwegian Air Argentina and JetSMART Argentina had passenger shares of 9%, 7% and 3%, respectively.
The administration of then-President Mauricio Macri had adopted a more liberalized philosophy toward governing Argentina’s aviation market, which created the opportunity for the establishment of low-cost airlines. But in late 2019, Norwegian opted to exit the domestic market as part of a larger corporate restructuring program, and sold a 100% stake to JetSMART Argentina, which is a sister airline to JetSMART Chile and owned by Indigo Partners.
Argentina held elections in 2019, and the new administration of President Alberto Fernandez and former President Cristina Kirchner as vice president, aiming to contain the spread of the COVID-19 pandemic, closed off air travel to, from and within the country until September.
That obviously created challenges for the country’s remaining airlines and LATAM, which is restructuring under Chapter 11 bankruptcy protection, concluded current conditions aggravated by COVID-19 made its domestic operations in Argentina unsustainable.
The government has not stated publicly if it intends to offer financial support to the country’s airlines that are not owned by the government.
During a recent CAPA - Centre for Aviation Masterclass, Indigo Partners managing partner William Franke concluded that “Argentina is a political mess right now,” and stated its airline sector was under intense regulatory pressure as the government attempted to address other issues.
“Argentina is its own special unfortunate case,” Franke said.