Colombian competition hots up

Washington DC
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Competition in Colombia's dynamic aviation market is about to become even more intense as a new player prepares to enter with support from LAN, and as Colombian low-cost pioneer Aires turns its focus to international expansion.

Colombia has bucked the global downturn, chalking up eye-popping domestic growth since Aires brought low fares to domestic trunk routes last year. The country's domestic market grew 22% in the second half of 2009 and 37% through the first four months of this year to 4.8 million passengers, as Aires expanded its 737-700 fleet to 10 aircraft.

Aires, a 30-year old regional carrier which turned to a low-cost model after taking its first 737 in early 2009, will add more capacity to its domestic market this summer as four 70-seat Bombardier Dash 8 Q400s enter service. Aires has already surpassed Copa subsidiary Aero Republica to become Colombia's second largest carrier after Avianca.

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Chairman Pedro Niño says, by stimulating demand from people who previously did not fly, Aires has proved the market is large enough to support three major carriers: "We are very focussed on developing a new market. In our last survey 40% of our customers were flying for the very first time."

The question is if the market can support a fourth and possibly a fifth player. AerOasis, backed by Colombian investment firm Corso, plans to launch services this year with three Airbus A320s. Corso has been trying to launch AerOasis since 2006, but the proposed airline suddenly gained credibility in May when LAN unveiled a partnership with the start-up. Corso and AerOasis director Nicolas Cortazar says LAN is initially helping expedite its application for an operators' certificate, but the partnership could be extended to include codesharing. "LAN is interested in doing something with us," he says. "For now they are helping with certification and getting us started - that's it. We'll have to see how it goes."

LAN, which has eyed expansion into the Colombian passenger market for several years, last year launched a cargo airline unit in Colombia that is providing technical support to AerOasis. LAN is also supplying technical support and consulting services to AerOasis from its Santiago headquarters. So far, there are no plans for AerOasis to assume the LAN brand or sell a stake to LAN - a strategy LAN followed in using local partners to launch passenger airlines in Argentina, Ecuador and Peru.

While Corso has spent the last four years working on a low-cost carrier plan, Cortazar says it now is refining the model with input from LAN. "There have been a lot of changes the last few years. We need to adapt to that." The exact model, including whether to opt for a single- or dual-class configuration, will be finalised later this year, but AerOasis will not be a pure budget airline. "It will be an efficient model," he says. " It can't really be a low-cost carrier because of the restrictions in Colombia."

Cortazar argues taxes and charges are too high in Colombia to support a pure low-fare model, although Aires has essentially adopted such a blueprint. EasyFly, founded in 2007 by former Aero Republica owner Alfonso Avila, also has adopted a low-cost model and, in some respects, was Colombia's first low-cost carrier.

New Entrants

EasyFly launched in 2007 following an unusual low-cost regional model with Jetstream 41s. But it always planned to expand into trunk routes with 737s as part of a second phase. Avila says EasyFly is still working on this second phase, but adds that: "Now isn't the condition to start in Colombia. We'll have to wait and see what happens to the industry."

Avila "does not think" the market can support four major carriers, but believes consolidation could give it an opening. He claims EasyFly has an advantage because it launched with a clean sheet: "You really have to start with a new concept. You have to start as a real low-cost carrier."

AerOasis, however, is confident there is room for at least four carriers. "The market is growing in Colombia and we believe in this market," Cortazar says.

EasyFly and AerOasis are also interested in eventually entering Colombia's fast-growing international market, but acknowledge there may be little room as Aires and Aero Republica have over the last year applied for nearly every available traffic right on international routes within narrowbody aircraft range.

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The growth of Avianca read our recent cover interview with chief executive Fabio Villegas
Avianca for several years has profited from being the only Colombian carrier on most international routes. While it has seen its market share shrink over the last year, its domestic and international traffic continues to grow. Avianca is confident it can continue to pursue profitable growth in Colombia, but has also been able to reduce its dependence on the Colombian market through its merger with TACA. Completed earlier this year, the two carriers are now working on exploiting fleet and network synergies.

Colombia's second legacy carrier, Aero Republica, today only serves neighbouring countries but has been looking at launching several medium-haul services as part of its international plans.

Aires has even more ambitious international expansion plans. The carrier in June launches services to New York, its second US destination after Miami. Niño says Aires, which also operates turboprop flights to Venezuela and the Caribbean, has already secured Colombian traffic rights to launch several new medium-haul destinations, including Asuncion, Cancun, Lima and Toronto.

Aires hopes to start at least some of these routes this year, although Niño says timing of the launches "doesn't depend on us" because final approvals still need to be secured from the relevant foreign governments. "Last year we brought the low-cost model to the domestic market. Right now, what we are doing is giving this model to the international market," he says.