"Absurd” is the reaction of some aviation analysts to the absence of low-cost carriers (LCCs) in much of Latin America.

Aside from Brazil, Mexico, and Colombia, there are no LCCs in Latin America, and this is a region with an emerging middle class, rising trade and commerce, and a growing appetite for travel. Beyond these three countries, the traffic data shows that legacy airlines are capturing nearly all of this growth.

Latin America and southeast Asia share some common traits, especially over aviation. Both have roughly the same size and population, and both lack good surface transport. Both have large and small countries growing at uneven rates. Economic expansion and personal income are rising in some countries, and their airlines show it. Singapore, Malaysia, and Thai Airways are the big southeast Asian carriers; Latam, Avianca, Copa, and Aeromexico are their Latin counterparts. Alex de Gunten, former head of ALTA, referred to the disparity between strong and weak Latin airlines as “unbalanced competition,” but he could have been talking just as easily about southeast Asia.

The biggest difference in aviation between the two regions is the number of LCCs. At latest count, southeast Asia had 22. Latin America only has six. They are the pioneer in the region Gol and its fellow Brazilian carrier Azul; Mexican carriers Volaris, Interjet, and VivaAerobus, and Bogota-based VivaColombia. A few others have come and gone -- Aires and Webjet were taken over; AeroContinente and Sol, which briefly became AeroHonduras, folded. The only other LCCs serving Latin America fly down and back from the USA or Canada.

So why the big difference in LCC penetration between southeast Asia and Latin America?

One answer is aeropolitics. Two of the three next largest Latin American markets that lack LCCs – Argentina and Venezuela (as well as smaller Bolivia) – are effectively closed to new entrants due to policies that favour their government-owned carriers. Those state carriers could launch LCCs of their own, but they have little incentive to do it.

The second answer relates to the so-called “unbalanced competition.” The next largest Latin markets that lack home-based LCCs after Argentina and Venezuela, are Peru, Chile, and Ecuador. Lan and/or Avianca dominate all three of these markets.

Juan Emilio Posada, founder of VivaColombia and now its chairman, is well aware of this. “There are opportunities in countries or groups of countries where no low-cost carriers are present,” he says, but “the smaller the market and the more concentrated the network carriers, the greater the challenge.”

Another explanation for the differences between Latin America and southeast Asia is that Southeast Asian airlines simply started evolving sooner, and Latin LCCs are beginning to move in the same direction.

Latin LCCs have been slower, for example, to launch cross-border flights than their Asian counterparts. Due to Brazil’s size, Gol has concentrated on its domestic market. After it bought Varig in 2007, Gol used Varig to fly a limited international network. But Varig was a full-service product and Gol dropped it after only a year. Since then, Gol’s cross-border growth has been cautious. Last year it launched flights to Miami and Orlando, its first outside of Latin America.

The grounding of Mexicana spurred Mexico’s LCCs to fill its vacuum. Volaris and VivaAerobus have focused solely on domestic and US markets, but Interjet now flies to Cuba, Guatemala, Costa Rica, and Colombia as well as the USA. VivaColombia is starting its own cross-border expansion early. It has applied for permission to fly to Panama City, Mexico City, and Cancun, and hopes to launch these routes in 2014. “International expansion has always been part of our business plan,” says VivaColombia’s Posada. He foresees “more interconnected” routes within four-hours of its hub. Cross-border networks are essential in much of Latin America because the domestic markets in many countries are simply too small.

Cross-border networks are one thing, but joint ventures are another. Here, again, Latin LCCs trail well-behind their Asian counterparts. Latin legacy airlines such as Lan pioneered the concept of cross-border joint ventures, but AirAsia, JetStar, and Tiger have extended the idea in a big way to LCCs in southeast Asia.

Gol just took its first small step in this direction, launching Gol Dominicana with Dominican Republic partners only a few weeks ago. It uses Santo Domingo as its hub. VivaAerobus and VivaColombia share some common ownership through the Ryan family, founders of Ryanair, but Posada downplays talk of any “Grupo Viva.” “There is no such thing,” he says. Clearly, cross-border joint ventures between Latin LCCs still have a long ways to go.

For now, the news is more about new LCCs. Three independent start-ups have announced plans to launch low-cost flights from their bases in San Salvador and Costa Rica. All hope to fly by early next year. Whether they will remains to be seen, but it shows that they realize the potential for growth in Latin America’s low-cost sector.

Source: Cirium Dashboard