Argentina shuts the door on liberalisation

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Latin America's gradual shift towards liberalisation has taken a step backwards with Argentina moving to protect its renationalised flag carrier as it attempts to restructure.

Uruguay's Pluna has been blocked from launching new routes to the country by the Argentinean government, which sees Pluna as stealing from Aerolineas Argentinas passengers that are travelling from regional cities in Argentina to Brazil. The Uruguayan government has accused its Argentinean counterpart of violating their bilateral by denying new traffic rights to Pluna, which relies heavily on transfer traffic as part of a new strategy focusing on regional connections. The dispute is unlikely to be resolved anytime soon and has forced Pluna to adjust its expansion strategy.

Pluna is now redirecting capacity that had been earmarked to open up Trelew and other new destinations in Argentina to Paraguay, where it aims to eventually operate a mini-hub at Asuncion starting with flights to Santiago in Chile and Santa Cruz in Bolivia. "It's difficult politically right now in Argentina so we're better off focusing on Asuncion," says Pluna chief executive Matias Campiani. "We're trying to focus now on point-to-point flights from Asuncion [but] our long-term vision is a regional hub in Paraguay. Asuncion is not well served, it doesn't have a national carrier and geographically it has the perfect location in the middle of South America."

Other carriers could also be affected by Argentina's new protective policy as the government wants to ensure Argentineans living outside Buenos Aires fly on Aerolineas via Buenos Aires when travelling overseas rather than on foreign carriers, who typically offer faster connections via hubs such as Santiago, Sao Paulo, Montevideo and Panama City. "This is not traditional thinking," says Copa chief executive Pedro Heilbron. "It's all positive to have service to secondary cities."

Copa launched services in 2007 from its Panama City hub to Cordoba, giving Argentina's second largest city better connections to Central and North America and the Caribbean. Heilbron says the service has proven to be beneficial to Cordoba's economy.

Argentina's new closed door policy represents a major change as earlier liberalisation allowed Chile-based LAN to launch domestic operations in Argentina in 2005. LAN Argentina now serves all the major domestic routes as well some key international routes including Miami.

"It's not easy to talk about Argentina as we're in a sensitive position with 30% of the domestic market," says LAN chief executive Enrique Cueto, but acknowledging: "The concern is if the government doesn't see strong numbers out of Aerolineas they will try to prevent the growth of LAN Argentina."

Lan Upbeat

However, Cueto adds LAN is "comfortable" with the network it has built up in Argentina anddoes not believe the government will force LAN Argentina to cut what it has already launched. "In general we have a good relationship with the Argentina government," he says. "We have a lot of service there. There are some problems but they understand we are a political solution to them if they have problems with Aerolineas' unions."

Argentina's new policy has also captured the attention of Latin American and Caribbean airline association ALTA, which has succeeded over the years in slowly persuading governments throughout the region to liberalise. But ALTA executive director Alex de Gunten points out Aerolineas was "going through a difficult period" and if the government didn't step in the airline would have had to shut down or be broken up, options the local unions would not tolerate.

While Aerolineas and sister carrier Austral were renationalised late last year and the government approved a major fleet renewal including 10 new Boeing 737s and 20 Embraer 190s, uncertainty remains. Transport Minister Ricardo Jaime, a key proponent of renationalisation, resigned in June after his party lost in mid-term elections. Aerolineas and Austral chief Julio Alak was also replaced by Mariano Recalde, signalling another possible shift in strategy as the two carriers, believed to be losing about $1 million per day, begin restructuring. "The unions are very strong with Aerolineas and we don't know what will happen with the company," Cueto says.

The replacement of Jaime with Juan Pablo Schiavi and the establishment of a new civil aviation authority led by by Rodolfo Gabrielli brought Argentina's aviation industry to a halt as the new leaders tried to figure out how to proceed. All pending applications, including proposed network changes at Aerolineas and a request from AeroVIP to re-launch, were put on hold.

AeroVIP, a regional carrier which ceased operations in 2004, is seeking permission to resume services using one of Pluna's seven Bombardier CRJ900s. If approved, AeroVIP will initially operate alongside Pluna on the Buenos Aires to Montevideo and Punta del Este routes. But Pluna majority owner Leadgate, which has acquired a 60% stake in AeroVIP, plans to eventually use AeroVIP to open new routes between Montevideo and secondary cities in Argentina which Pluna is now blocked from serving.

AeroVIP is part of plan by Pluna/Leadgate to create regional carriers or operations in several South American countries, connecting thinner markets under the radar of larger Latin airline groups such as LAN and TACA. Leadgate is also looking at bringing in a regional carrier from outside the region, possibly Canada's Jazz, as a new strategic investor and as part of a $12 million recapitalisation that will help fund expansion of Pluna's fleet.

Somehow Argentina, long a dynamic aviation market with complex politics, will eventually find a new equilibrium. Cueto says despite the setback in Argentina Latin America generally is still liberalising (see page 72) and "my main concern is Venezuela".The latter also has seen a renationalisation, with Aeropostal being expropriated by the controversial Hugo Chavez administration. Carriers from across the Americas are now struggling to secure new traffic rights to take advantage of growing demand for Venezuelan services.

Click here to read more about recent ownership developments in Latin America