January 19, 2017
The low cost airline concept is no alien to Latin America - from Mexico to Brazil, Argentina and Chile, the continent seems particularly suited to this business model: large cities, long distances and limited road and rail infrastructure.
However, this does not mean the low cost airline industry has reached a point of maturity in the region. Events in 2016 and the outlook for 2017 seem to underscore this point.
Is this perhaps the reason Irelandia is divesting its 49% stake in Viva Aerobus to seek fresh pastures
Let’s have a look at them, from North to South:
Mexico is one of the most mature LCC markets in Latin America, with the likes of Viva Aerobus, Volaris and Interjet. Is this perhaps the reason Irelandia (the investment vehicle of the Ryan family, of Ryanair fame) is divesting its 49% stake in Viva Aerobus to seek fresh pastures. In particular, the Irish group has opted to invest in new projects in Peru. The new venture, also under the Viva brand, is expected to launch in the first half of this year.
Another large Mexican LCC player, Volaris, is also expanding in new markets, although closer to home, with the launch of Volaris Costa Rica.
Also in Central America, Panamanian airline COPA is launching its own low cost airline based in Colombia. Wingo, as the new airline is called, operates a fleet of Boeing 737-700 provided by its parent company. Further competition in the Colombian market, that is already the battleground for the three large Latin American aviation groups, Grupo Viva, with Viva Colombia, LATAM and Avianca.
But perhaps it is the Southern half of the Latin America that, when it comes to low cost airlines, is likely to see the most action this year. One country in particular is drawing most of the attention: Argentina.
Argentina is one of the last remaining big markets in the World still relatively untapped by low cost airlines. A mix of political and economic hurdles during the last couple of decades have prevented not only low cost carriers, but the whole airline industry from fully developing to its full potential there. Argentinians take 0.23 air trips by per person per year, this is about one fourth the Chilean average and 7 times less than Spain. There is much room for growth!
This may be about to change as the new Argentinian administration is expected to make it easier for new airline ventures to set up shop in the country.
The country is in the sights of the top regional players, Grupo Viva, of course, but also LATAM and some truly new entrants.
flyBondi, for example, is a new low cost airline project for the Argentinian market, backed by Swiss entrepreneurs. At the same time, Norwegian has announced its intention to bring its low cost-hybrid model to Argentina too.
There are also new projects across the Andes. In Chile, SKY Airlines, the second largest Chilean carrier announced its transformation to a low cost LCC last year. Although not a low cost carrier, Paravai Airlines aims to launch this year with a network that would stretch as far as three US gateways.
And in Brazil, despite challenging domestic economic conditions, Azul is looking both at growth in the region, with the possibility of opening a new hub in Uruguay, as well as across the Atlantic, The Brazilian low cost airline, that recently got some investment from China’s HNA Group, has leveraged its partnership with Portuguese flag carrier TAP (both have JetBlue founder David Neeleman as a shareholder) in order to launch direct flights to Europe.
As you can see, plenty of interesting developments in this region, and this list does not even take into account the likely growth in low cost long-haul capacity as European carriers such as Norwegian, Eurowings, French Blue or the new IAG Barcelona-based long-haul venture start flying into Latin America…
All these projects will be facing some serious obstacles, like the fact that almost two thirds of costs in the region are defined by oligopolies or monopolies, such is the case of airport and overflight charges, fuel prices and some very rigid labor regulations. Or, on the revenue side, the region’s low average per capita income and the lack of high density traffic markets.
We wonder which of these LCC new projects will be truly successful, what is clear it that this is going to be an exciting year for aviation in Latin America.