Profit Gap Between North, Latin America To Grow in 2022, IATA Says
BOSTON—IATA said the gap in profitability between airlines in North and Latin America will widen next year, driven by a strong domestic market in the U.S. and financial weakness among legacy carriers in Latin America.
Airlines in Latin America will lose an estimated $5.6 billion in 2021, IATA forecast, roughly in line with $5.5 billion in estimated net losses among North American carriers. But the gap will grow substantially in 2022, with North American carriers expected to earn $9.9 billion in net profits compared to $3.7 billion in combined losses for Latin operators.
The challenges facing Latin carriers in 2022 include significant restructuring costs as legacy carriers that sought Chapter 11 bankruptcy in the U.S.—including Aeromexico, Avianca and LATAM—adjust to new tough business realities that will weigh on financial results. The U.S., on the other hand, saw no major airline bankruptcies after Congress offered up nearly $80 billion in grants, loans and tax relief as part of three separate stimulus packages in 2020 and 2021.
Peter Cerda, IATA’s regional VP for the Americas, said the trade group believes that government policies in Latin America—including high levels of taxation and regulation and underfunded infrastructure—are often to blame for the airline sector’s difficulties there. Some countries also pursued overly strict travel restrictions during the COVID-19 pandemic that IATA blames for cratering international passenger traffic to the region.
Argentina is one of those countries. It maintained one of the strictest travel bans during the pandemic—having capped international arrivals at just 2,500 per day—although that is set to rise to 4,000 during October. The Argentinian government plans to lift the cap once the country vaccinates half its population. Still, IATA warned Argentina’s recovery will be hampered unless the government reduces heavy tax burdens imposed on airlines.
Chile re-opened to vaccinated travelers on Oct. 1, ending a strict travel ban that applied to most non-citizens. All foreign arrivals will be required to quarantine for five days, however, regardless of vaccination status, which IATA warned “will do little to stimulate traffic.” IATA also called out several regulatory initiatives being debated in the Chilean Congress that “would drive up costs and not necessarily provide increased consumer protection.”
In Colombia, domestic air travel has rebounded to just under pre-pandemic levels, Cerda said, with international traffic showing “very promising signs of recovery.” Still, Cerda said IATA has serious concerns about ATC efficiency and infrastructure at Bogota Airport, as well as legislative consumer protection initiatives under consideration such as proposed penalties for flight delays.
Other Latin American countries like Mexico and Brazil have fared somewhat better, IATA said, in both cases due to a more hands-off policy from their respective federal governments. Mexico, for example, is already seeing greater levels of air travel than in 2019, thanks to the Mexican government’s decision not to close the country to air travel during the pandemic, which led to strong cross-border travel between with the U.S. Brazil has also benefited from a lack of international entry restrictions and a large domestic market.
In North America, the U.S. air travel market has recovered well domestically, and the planned lifting of restrictions on travel from vaccinated foreigners should boost international volumes beginning in November. Still, Cerda said IATA continues to have lingering concerns about the U.S. market, including how the vaccine mandate for entering the country will work and rising charges for foreign airlines at airports in Boston, Los Angeles, San Francisco and elsewhere.
Canada, which had some of the most stringent travel restrictions during the pandemic, reopened to vaccinated international visitors in September. While Cerda said IATA applauds that decision, the group wants to see the government accept more types of vaccines besides those already approved by Canadian health authorities.