Latin America's regional sector is in a state of flux, with little by way of a clear pattern emerging across the region
Summarising the evolving nature of the Latin American regional airline sector is no easy task. This is confirmed by AvGroup chairman and Latin aviation guru Bobby Booth, who, when asked to describe the prevailing trend, says: "There is no trend."
Indeed, a glance around the region shows regional carriers at every phase in the life cycle. First, there is a new flock of newborns - Aerolineas Universal in Colombia, Star Up in Peru, U Air in Uruguay, Aeropacifico in Ecuador, OceanAir in Brazil and Lassa in Chile. Next are several established regionals, such as Aerolitoral and Aeromar in Mexico, that are owned by major airlines. Last, come Latin America's independent regional airlines - by far the largest group.
Two-thirds of the regionals owned by majors are in in the process of being absorbed by their parents. Varig, for example, has merged its Nordeste and Rio Sul units into the parent airline. Alianza Summa is in the process of consuming SAM; Aerolineas Argentinas plans to absorb Austral. Only the Mexican regionals owned by Aeromexico and Mexicana are keeping their identity.
Highlighting the differences in the sector is the fact that conditions facing regional carriers vary hugely around Latin America. In Brazil, Gol has become South America's Southwest Airlines, offering low-fare, high frequency, single-class domestic flights with Boeing 737s. Gol has been such a big success, it has intimidated Brazil's other regionals. Booth notes other carriers avoiding routes where Gol operates.
In contrast, Colombia, Ecuador and Peru have routes across the Andes into unprofitable jungle airstrips. Military-operated regionals such as Satena, Tame and Tans are the only carriers flying these as missionary routes.
Finally, in the last category of regional airlines, a few are graduating from those ranks into fully fledged airlines with cross-border and even overseas routes. Witness Santa Barbara in Venezuela and Southern Winds in Argentina. Behind them come the likes of Argentina's Aerovip, filling the short-haul gap left by their departure.
Not dead, just dormant
Other carriers are also leaving the ranks, but for less happy reasons, such as bankruptcy. But even here causes for optimism remain, for some prove not to be dead, but only dormant. Argentina's Sapsa seems to have revived, and is now planning flights to Chile. It is too soon to know about Via Brasil, Argentina's Laer or Nicaragua's AeroSegovia.
Why so much disparity in a region that seems so homogeneous in other ways? For a start, that homogeneity is superficial. Chasms exist between the business climate in Chile and Mexico, for example, and that of Guatemala and Ecuador. And the disparity in country size itself produces hugh traffic differences. The four biggest countries - Brazil, Argentina, Mexico and Colombia - account for 90% of Latin America's domestic passengers.
Were it not for the added differences in economic strength, Latin America would consist of four countries and a handful of little provinces. For the regional airlines in small nations such as Uruguay and Costa Rica, domestic markets are too small to sustain viability. They need cross-border routes to survive, and that requires liberal aviation regimes. Here again the story is patchy.
Multilateral progress
Andean Pact members - Colombia, Venezuela, Ecuador, Peru and Bolivia - have reciprocal open skies agreements. Mercosur, the bigger trade block containing Argentina, Brazil, Paraguay, and Uruguay, with Chile and Bolivia as associate members, has made less multi-lateral progress. Its members signed the Fortaleza accord in 1996, allowing open skies between cities not covered by bilaterals, but airlines have made little use of it. "Everybody wants to fly to the big cities," Booth says, adding that traffic studies to support the secondary routes are difficult because of a lack of data.
Bilaterals typically limit designations and bar cabotage, but changes are afoot. Chile and Argentina have relaxed restrictions, and Chile and Uruguay have signed an open skies accord that allows limited cabotage. Under a recent loosening of the Paraguay-Bolivia accord, TAM-Mercosur is launching cross-border flights to promote tourism. Bolivia and Peru are discussing more transborder flights, while Bolivia and Argentina are arguing about service over their frontier.
Regional airlines reflect the region's opportunities and challenges. Booth talks of Latin America's growth potential. Less than 10% of its 500 million population has ever flown. The demand is there, but, says Booth, "the key is capital". Aircraft are available at reasonable prices, but "no one has the capital".
Until airlines solve this, through consolidation, public offerings or something else, the trend among Latin America's regional carriers will continue to be no trend at all.
Source: Airline Business
