TAME sees benefit in end of fuel subsidies in Ecuador

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The chief executive of Ecuador's state-owned airline TAME, Rafael Farias, believes that his carrier has benefitted from the end of fuel subsidies in the country, which he says has led to overcapacity.

The subsidies had "created a situation in which LAN and [Avianca subsidiary] Aerogal had positioned in the country more aircraft then they needed", Farias tells Flightglobal.

"Now they are adjusting this capacity, which makes the market more transparent," he adds.

In 2008, Ecuador created a subsidy that reduced fuel prices for national airlines to one dollar per gallon. Older aircraft were excluded from the benefit, as the government wanted to incentivise the fleet renewal of the country's airlines. Earlier this year this scheme was terminated by the government, which said it had achieved the goal of renewing the country's fleet.

Farias says that LAN, Avianca and Taca had replaced aircraft being operated on flights to and from Ecuador with aircraft that were moved to their respective Ecuadorian subsidiaries, LAN Ecuador and Aerogal, so as to benefit from the cheap fuel.

"We initially asked the government to maintain the subsidies, but after seeing the results of LAN and, eventually, Avianca withdrawing aircraft capacity, we now feel that the subsidy distorted the market. This new situation gives us the opportunity to consolidate our domestic leadership and consolidate our international expansion," he says.

As the result of the fuel subsidies, Fokker and Boeing 737-200 operator Icaro, which did not have the funds to acquire newer generation aircraft, went out of business. Aerogal replaced its Boeing 737 and 727 fleet with Airbus A320 family aircraft. LAN Ecuador operates Airbus 319s and Boeing 767s while TAME operates Airbus and Embraer jets, as well as ATR turboprops.