ANALYSIS: What next for airline fleets in Latin America?

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A wave of consolidations among Latin American airlines has rationalised fleets at the region’s top carriers in recent years, as airlines continue to transition to new aircraft technology and opt for modernised interiors to win passengers over.

LATAM Airlines Group – the region’s biggest carrier, formed from a merger between LAN and TAM – has been steadily rationalising the different widebody types in its combined fleet. Although both carriers had operated Airbus narrowbodies, their widebodies were vastly diverse.

LAN had operated Airbus A340s and Boeing 767s, while TAM had Airbus A330s, A340s and Boeing 777s. LAN holds orders for the Boeing 787, and TAM is among Airbus’ customers for the A350.

LATAM’s chief executive Enrique Cueto says the carrier plans to phase out the A340s over time. It now operates only three A340-300s, according to Flightglobal’s Ascend Online database. Three other A340s, formerly operated by LAN and TAM, are in storage.

The airline is also reducing its Airbus A330 fleet – formerly operated by TAM. The carrier is switching them out in favour of LAN’s Boeing 767s, which the airline says offer lower operating unit costs. It has also said it will sell 10 A330s, reducing its fleet of the type to 10 aircraft by end-2015, from 20 in end-2013.

With lie-flat seats in business class, the 767s also offer a superior product for passengers over the A330s, LATAM points out.

LATAM’s fleet rationalisation mirrors a similar effort at the other major Latin American airline group, Avianca – formed from a merger between Avianca and Taca that closed in 2010.

The airlines in the Avianca group were operating aircraft from a total of 11 aircraft families before the merger. Since then, the group has reduced this to six. It has consolidated widebody operations around the A330 ahead of its 787 and A350 deliveries, and has reduced the various narrowbody types to only A320-family aircraft and Embraer E190s.

The fleet rationalisation moves taken by Latin America’s major airlines are in line with similar actions carriers usually take following consolidation, notes George Dimitroff, vice-president advisory, Americas, at Ascend Worldwide.

Merged carriers will have more bargaining power with OEMs, he adds. “Where different management teams have different preferences for one OEM or another, the dominating management team post-merger influences the fleet for the new larger entity,” says Dimitroff. He cites LATAM’s preference for LAN’s 767s over TAM’s A330s as an example.

Both LATAM and Avianca hold orders for the 787 and A350, as well as the upcoming re-engined variants of Boeing and Airbus narrowbodies. However, they are not the only carriers in the region which are embracing new aircraft technology in an effort to reduce costs and compete. Various Latin American airlines have placed orders for the re-engined A320neo and 737 Max. In particular, Aeromexico made headlines when it splashed out on up to 90 737 Max aircraft, in a deal finalised in November 2012. Brazil’s low-cost carrier Gol has also ordered 60 737 Max aircraft.

Not to be outdone, Airbus has won orders for the A320neo from several Latin American carriers, including the biggest ever single Airbus order from a Latin American airline – an honour that went to VivaAerobus. The Monterrey-based airline announced an order for 52 A320 family aircraft in 2013, including 40 A320neos, as well as an additional 40 options.

Latin American carriers are expected to continue to lean towards newer and more efficient aircraft types as they work to modernise their fleets. Panama’s Copa Airlines has indicated it will announce a long-awaited order for the 737 Max this year, as it locks in future fleet growth. The Star Alliance carrier, which operates only 737s and Embraer E-jets, has long been pegged as a natural 737 Max customer.

Aside from Copa’s impending 737 Max purchase, 2014 could see a revival of regional aircraft orders in Latin America – particularly in the region’s biggest market of Brazil.

Avianca Brazil is poised to place an order in 2014 and says it is in talks with several airframers, including Embraer. Both Bombardier and Superjet have publicly said they are in talks with an Avianca airline on a large regional aircraft order. Avianca Brazil is likely to use the new regional aircraft to replace its fleet of ageing Fokker 100s.

The airline could place an order as early as mid-2014, chief executive Jose Efromovich says. However, he told Flight International in February that the airline remains in talks with aircraft manufacturers and has yet to make a decision. It is not yet clear how many aircraft the airline is in the market for, but reports have indicated this could range anywhere from 30 to 50 aircraft.

The carrier’s interest in regional aircraft comes as Brazil’s government plans to incentivise the growth of regional aviation in the country. This includes subsidies for airfares on secondary routes and investment in Brazil’s regional airports. The incentives have piqued the interest of bigger airlines like TAM and Gol, which have long concentrated domestic networks around the country’s major cities.

LATAM’s Cueto says opportunities exist for flights to many small cities in the country which cannot be served with bigger jets. The airline is continuing to study the market, and could order regional aircraft if it plans to launch such operations.

Cueto likened the regional possibilities within Brazil to that in the US market, where regional airlines feed US legacy carriers’ mainline operations. “In the US market, you see a lot of feeding through regional jets. So the question is, when we consolidate the main routes, what should be the next step? And that’s a question we are looking at,” Cueto says.

Gol has also said it will consider entering the regional market if the conditions are right. The airline operates only Boeing 737s.

Brazilian low-cost carrier Azul, which operates Embraer jets and ATR turboprops, has proven to be successful in reaping the country’s regional market by serving smaller underserved cities. The carrier said in 2013 that it was the sole airline on more than 70% of its routes, indicating the potential for competition if other Brazilian airlines had the right-sized aircraft to operate those flights.

Ascend Worldwide’s Dimitroff says there is definitely room in Latin America for airlines to tap into regional markets. “I could see a potential increase in large regional jets of 85-100 seats,” he says.

This could happen as the region’s airlines consolidate and become stronger, fortifying their presence at the major cities in Latin America, Dimitroff adds. “With a stronger consolidated network there are more opportunities for regional spokes from main hubs,” he says.

However, the addition of more regional jets in the region is unlikely to impact the overall fleet landscape in Latin America, which will likely continue to be dominated by a few major airlines operating mostly bigger jets.

"I doubt it would shift the dial on the overall fleet mix significantly,” adds Dimitroff.