Breaking down the barriers to bring low-cost success to Central and South America

A rise in low-cost airline start-ups across Central and South America is a clear sign of the potential of a market where passenger demand is forecasted to double from 298 million in 2015 to around 658 million in 2035 and a possible contribution to regional GDP of over $380 billion. However, to unlock these economic and social benefits, governments have a responsibility to accommodate this growing demand with cost-efficient infrastructure.

At the start of December 2016, Wingo, the new brand of Copa Airlines Colombia, and Volaris Costa Rica will take to the air and as first revealed at Routes Americas at the start of this year, Grupo Viva, backed by Irelandia Aviation, plans to launch three new international airline operations across Latin America as part of a five year development plan. These will be joined by other start-ups and expansion from established operators that will put this region into the global spotlight.

Volaris Costa Rica will launch operations from December 1, 2016 after securing its air operator certificate in the past month. It will initially fly between San Jose and Guatemala City, shortly followed by a link between San Jose and San Salvador, but plans to grow its network across Central and South America to include as many as eight different countries within its first year of operation. These include destinations in Colombia, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Panama and Peru.

The airline is sourcing A320 Family equipment from the existing fleet and orderbook of Volaris. It will initially fly with two A319s but plans to grow its fleet to four aircraft within its first six months of operation and up to 20 by the end of the decade.

Copa Airlines, an operator that has made a name for itself through its transfer model via Tocumen International Airport in Panama City has also turned to the low-cost sector in an attempt to turnaround its operations in Colombia.

Wingo will also commence operations on December 1, 2016 as part of its Copa Colombia subsidiary operation flying a fleet of four single-class, 142-seat Boeing 737-700s on a network of 23 domestic and 47 international weekly flights across 16 cities in ten countries in South America, Central America and the Caribbean. It has been developed to enable Copa to better compete and turnaround losses on its operations in the country.

Elsewhere, Flybondi has set out its goal to bring ultra-low-fare travel to Argentina and commence flights in 2017 linking Buenos Aires and Iguazú, Córdoba, Mendoza, Bariloche, Salta, Neuquén, Tucumán, Ushuaia, El Calafate, Comodoro Rivadavia, Resistencia and Río Gallegos as a new political era takes off in the country.

A more liberal approach to aviation policy in Argentina is also likely to attract Grupo Viva, which is exploring the market – alongside others such as Ecuador and Panama – for its next airline launch in 2018. The group has already committed to founding a new airline operation in Peru, with VivaPeru expected to launch operations in the second quarter of 2017 with a fleet of two A320s initially serving eight domestic points in the country, before an inevitable expansion into international operations. The airline is expected to confirm details of its launch plans, including base airport early in the New Year.

These start-ups clearly highlight the potential in Central and South America, but markets such as Argentina are also an excellent example of potential issues. The country has been described by industry body IATA as the region’s “poster child for necessity of capacity improvements” as its airports and air navigation infrastructure have been neglected for decades.

Alongside the new arrivals there will also be big changes at incumbent operators. These include Mexican carrier Aeromar Airlines which plans to grow its presence in the regional market. Backed by a $100 million investment from Synergy Group, the owners of Colombian carrier Avianca, the airline will seek to grow its presence in Mexico and across a network that includes flights into the US. The deal, which remains subject to government approval, will see Synergy acquire an initial 25 percent voting share in Aeromar, then growing to 49 percent with the purchase of a further 24 percent of ordinary shares.

The Mexican carrier will introduce eight new ATR turboprops into its fleet during the first half of 2017 consisting of two ATR 42-600s and six ATR 72-600s. It also holds options for another six aircraft as part of a strategy to serve many shorter routes that turboprop flying offers significant cost advantages versus jet equipment.

The investment will help Aeromar "fill a vacuum in regional aviation", enabling the carrier to add more routes that are currently not served by jet aircraft and will "fill the gap in regional airports where demand is not sufficient for larger aircraft", said Germán Efromovich, chief executive officer, Synergy Group.

Although this investment is from Synergy Group and not directly via Avianca, it will provide the Colombian carrier with a wider presence across Central and South America as it grows its own connectivity across these areas. The airline continues to grow in scale and is expected to further expand outside of Latin America in the coming years with additional new routes in the US and Europe.

“Aviation is the business of freedom. It helps people to trade, to discover and to better their lives. A successful aviation industry generates prosperity. Despite protectionist rhetoric -- which we must be robust in countering -- economies need air connectivity to grow and integrate with world markets.”

Alexandre de Juniac
Director General and Chief Executive Officer, IATA

Despite the economic headwinds of late 2015 and 2016, Latin America and the Caribbean (with the exception of Venezuela and Brazil) continue to show growth in passenger traffic. During 2015, member airlines of ALTA (Latin American and Caribbean Air Transport Association) transported 207 million passengers, operated more than 1.86 million flights, increased their fleet to 1,170 aircraft, and started service on 74 new routes. Latin America and Caribbean aviation creates 806,000 direct jobs and supports 5.2 million jobs a year, and the industry drives $167 billion in GDP, the organisation confirmed during its annual ALTA Airline Leaders Forum in Mexico City during November 2016.

“Aviation is a vital engine spurring social and economic connectivity and prosperity throughout the Latin America and Caribbean region, and beyond,” said ALTA’s executive director Eduardo Iglesias. “We are stimulating economies, trade, travel and tourism, all while connecting the communities we serve. And we see great potential for the continued long-term growth of our industry in the region, which means even further social and economic connectivity for the countries of our region well beyond the direct impact of aviation.”

The International Air Transport Association (IATA) has urged governments in Latin America and the Caribbean to work with industry to make infrastructure a priority in unlocking aviation’s economic and social benefits.

Passenger demand in Latin America and the Caribbean is expected to more than double from 298 million in 2015 to 658 million in 2035. If that demand is met, the number of jobs supported by aviation in the region will grow from 5.4 million to 8.4 million over the same period. And aviation’s contribution to regional GDP will increase from $176 billion to $380 billion.

“Aviation is the business of freedom. It helps people to trade, to discover and to better their lives. A successful aviation industry generates prosperity. Despite protectionist rhetoric -- which we must be robust in countering -- economies need air connectivity to grow and integrate with world markets,” said Alexandre de Juniac, IATA’s director general and chief executive at the ALTA forum.

Focusing further on Latin America and the Caribbean, de Juniac noted the many challenges that airlines face. “Operational costs are high. Taxes are significant. In addition, regulations are burdensome and often not aligned with global standards. We need a strong partnership with governments that focuses on unlocking aviation’s benefits to tackle these issues effectively,” he said.

On top of that, in Latin America there is a huge opportunity for a government-industry partnership to create value by addressing the region’s many infrastructure deficiencies,” he added noting that severe capacity constraints in Bogotá, Lima and Mexico City illustrate the region’s airport capacity crunch. Meanwhile, he highlighted that Argentina, which ranks 114 among 141 countries for the quality of its air transport infrastructure, needs an urgent overhaul of its antiquated and costly air navigation system.

While the re-establishment of links between Cuba and the US has the potential to unleash tremendous opportunities, and the recently installed business-friendly government in Argentina could boost its prospects with pro-aviation policies and actions, Latin America is facing real challenges.

“The region’s contribution to global profits is expected to be about $100 million—which is completely disproportionate to its size and importance. Part of that is due to the high costs of operating in the region and onerous taxation,” said de Juniac.

On top of that, there are some headline-grabbing reasons for the region’s difficulties, according to the executive, most notably Brazil, which is said is still “in intensive care” and Venezuela, which he described as “an economic basket-case”.

“Sadly the Brazilian government has not recognised that aviation can generate prosperity—if the industry is not squeezed so tightly for taxes, as is the case today. And the government burdens airlines with a costly and complex web of regulation—often ignoring global standards,” he said.

And then there is Venezuela which is digging itself deeper into a hole by withholding $3.8 billion of airline funds. It is robbing itself of an opportunity of revival because airlines cannot provide connectivity if they can’t repatriate their own funds,” he added.

Richard Maslen

Richard Maslen has travelled across the globe to report on developments in the aviation sector as airlines and airports have continued to evolve and…