Examples of innovation included the distribution method adopted by Mexico's fast-growing carrier Taesa, and the 12-carrier LatinPass frequent flyer programme. Three examples of privatisation were discussed - the current programmes to sell BWIA and Ecuatoriana, and the results of the privatisation of Aerolineas Argentinas. And a range of speakers discussed infrastructure constraints and how they should be dealt with.
Taesa's president Captain Alberto Abed described how his fast growing carrier had been forced into selling tickets direct to the public, not only through the carrier's own ticket offices at 31 city and 24 airport locations, but also through ticketing facilities at DHL offices and department stores.
Claiming that Aeromexico and Mexicana discourage travel agents from selling Taesa tickets, Abed said that a cellular phone company had agreed to provide communications for the ticket stations in DHL offices and shops, in return for free advertising in Taesa's in-flight magazine - an innovative solution to a problem which would have grounded many carriers.
Abed told delegates that he expects Taesa to report a $14 million net profit this year on revenues of around $430 million, a 38 per cent sales growth on 1993. Taesa operates 30 aircraft now, and it plans to have a fleet of 86 airliners by 2000, said Abed.
The LatinPass frequent flyer programme is the first tangible example of cooperation among a diverse group of Latin American carriers. Responding to the increasing market share and profitability enjoyed by the US carriers, 12 carriers form the initial membership of the programme, which is due to be launched in January.
By adopting a franchise concept, LatinPass allows the carriers' existing programmes to continue, thus keeping the brand loyalty in their home markets while providing a master brand. Members of, say, LanChile's LanPass will be able to collect or redeem miles on any of the other 11 carriers plus the group's US partner, USAir. More airlines from the region are expected to join the programme.
'The equity partners in LatinPass currently provide service to, from and within 19 countries in the region, with 1.6 million frequent travellers enrolled in the individual programmes, carrying 35 million annual passengers, and generating $3.5 billion in annual revenues,' said Federico Bloch, chairman of LatinPass and chief executive of El Salvador-based Taca International. This compares with 800,000 members of arch-rival American's AAdvantage programme domiciled in Latin America in 1993, said Bloch. USAir has a further 14 million FFP members.
The privatisation of BWIA is scheduled to be completed by 30 December, said former Pan Am chief Ed Acker, who is coordinating the investment. A small group of US and local investors will provide $20 million of new capital in exchange for 51 per cent of the airline. The Trinidad & Tobago government will retain the rest, but is likely to put half of its shares into an employee ownership plan, he added. The investors' shares will be held in a voting trust and voted as a block through a trustee. 'Once 51 per cent of the 51 per cent has voted, the trustee will vote the balance of the shares in a like manner,' said Acker.
Before the transaction closes, the government will write off the carrier's substantial debt and assume severance payments for about 500 of BWIA's 2,000 staff, but in exchange will receive $40-50 million from the over-funded pension scheme. Acker said that the government had approved the proposed strategic initiatives, and 'ample commitments to fund the transaction have been offered.'
Acker's restructuring plan includes replacing the fleet of seven MD-83s and four L.1011s, which he says are unsuited to the carrier's network. He intends to create a new, consistent schedule and find alliance partners in the US, Canada and Europe. American, Air Canada and British Airways are rumoured to be the front runners.
Better regional feed into longhaul flights from Barbados and Port of Spain is also a must. The candidates are Liat, which is also due to be privatised, and Carib Express, the new regional carrier in which British Airways is to have a 20 per cent stake. Barbados-based Carib Express plans to launch BAe146 services in February, 1995.
In another privatisation development, the government of Ecuador plans to sell 50.1 per cent of Ecuatoriana to a trade buyer via the stock market next February, said Ivan Andrade, an adviser to the carrier's president. Ecuatoriana ceased operations in September 1993, but has assets worth $12-15 million, including its traffic rights and a DC-10. The government is writing off $100 million of debt, and will assume past liabilities which may emerge in the future, said Andrade.
Other current privatisations not covered in detail at the conference include the sale of 75 per cent of Air Jamaica and the failed sale of a majority stake in Pluna to a consortium including Varig.
Enrique Diaz Rato, general manager of planning, administration and control at Aerolineas Argentinas, discussed the results of the carrier's privatisation. Diaz Rato said that the benefits of the carrier's alliance with Iberia, and its own restructuring, were beginning to flow through, following the well known problems arising from employee discontent, heavy competition and a weakening currency.
Following heavy losses in the last two years, Diaz Rato predicted a loss of less than $10 million in the second half of 1994, and profits next year. 'Since privatisation, the staff have been reduced by 35 per cent - from 9,585 employees at the beginning of 1992, to 6,238 at the end of 1994,' he said. Employee productivity has increased by 72 per cent, and unit costs have risen only 17 per cent since privatisation, despite inflation of 67 per cent, added Diaz Rato.
The benefits of the alliance with Aerolineas' 85 per cent owner, Iberia, include each carrier having a daily B747 flight between Buenos Aires and Madrid, with traffic up 83 per cent since privatisation; a joint market share of 95 per cent on the Viasa/Aerolineas codeshare flights between Buenos Aires and Caracas; joint cargo flights to the US with Ladeco; cuts in airport costs; and the incorporation of Iberia's reservations, flight control and maintenance systems.
Turning to infrastructure, Joan Bauerlein, director of international aviation at the US Federal Aviation Administration, said that US-Latin American operations would increase by 7.9 per cent a year until 2003, resulting in a doubling of traffic in eight years. 'No country in the region is prepared for that.'
Todd Cole of SH&E predicted a lower revenue passenger mile growth rate of 6 per cent a year for all Latin American services, and pointed out that 92 per cent of scheduled departures from Latin America were on intra-regional and domestic flights.
Nobody was prepared to predict how much infrastructure investment would be required overall, but there was a consensus that private capital was a necessity. Arg Montero Montoya from Mexico's airport agency ASA said that private investment in airport developments in Mexico had risen from 3 per cent to 65 per cent, totalling $400 million, during President Salinas' last six-year administration.
Montero detailed almost $3.4 billion of airport development planned for the next 10 years at Mexico's airports. By 2005, Mexico City's airport will be handling 52.4 million passengers a year, over three times the current demand, while Cancun's traffic will rise more than fourfold to 18.2 million passengers a year.
Spencer Ballard, director of business development at Miami Airport, described the $2.5 billion master plan under which the airport will be upgraded to handle 48 million passengers and 2 million tonnes of cargo each year by 2005.
However, part of the plan is controversial. A $1 billion proposal to re-site American Airlines' fast-growing hub onto the north side of the airport has been rejected on cost grounds, and revised suggestions of placing American in the middle of the enlarged terminal area are leading to fears that this could make interlining difficult for the other carriers. No decisions have been taken, Ballard stressed.
US transportation secretary Federico Peña's new aviation policy statement can be read as 'a virtual invitation to the countries of Latin America to forge important new aviation relationships with the US,' according to Jeff Shane of Wilmer, Cutler and Pickering.
The policy places a priority on building relationships between the US and potential growth areas, and indicates a willingness to consider phased, transitional arrangements, Shane pointed out. 'The initiative to negotiate new open skies agreements with nine European countries should be seen as an important indication of the kinds of opportunities that are now available to Latin American carriers in their aviation relations with the US,' he said.
Such open skies agreements facilitate codesharing alliances: 'Any foreign carrier that has every US city on its route schedule has the ability to enter into valuable new codesharing arrangements with domestic US carriers, thereby making its service to the US part of a far more effective global network,' Shane added.
Bill Spohrer, president of Challenge Air Cargo, urged the US government to pursue open skies for cargo, on either a bilateral or a multilateral basis. Unrestricted market access, including routing flexibility and intermediate and beyond rights, are essential for efficient cargo operations, said Spohrer.
'There is a large untapped demand for improved cargo services within Latin America which today is not being met, simply because such rights currently are not available to US carriers,' Spohrer said. 'As a result, Challenge is forced to transport cargo bound from one Latin American country to another via Miami.'
Source: Airline Business