Now that the process of privatising the airlines in Latin America and the Caribbean is complete, the next logical step is consolidation. Most Latin carriers are small by world standards, all are highly dependent on their home country markets, and many have weak balance sheets. The heavy losses of the early 1990s have been stemmed, but substantial profitability remains an elusive goal for most airlines in the region.

Meanwhile, competition is getting tougher - not just from the US carriers led by American Airlines, but from an increasingly active group of smaller regional carriers with entrepreneurial managers educated at US business schools. Examples include Aces Colombia, the Taca group and Lapa from Argentina.

All these trends point to consolidation in one form or another. So far, such moves have been limited. The biggest example is in Chile, where LanChile, Ladeco and Fast Air now have joint ownership. Aeromexico and Mexicana have been allowed to create a joint holding company, but close cooperation is still impeded by antitrust concerns and there is even talk of Mexicana being sold. Vasp has bought stakes in LAB and Ecuatoriana and plans close cooperation with both.

Elsewhere, consolidation is limited to a few codesharing deals and the LatinPass frequent flyer programme. Inevitably, the main focus for codesharing has been with US carriers, but Latin carriers are not using codesharing anywhere near as much as airlines in other regions.

LatinPass is making good progress, with more than 1 million members and links to USAir's 14 million member programme. One side benefit is that smaller Latin carriers get better visibility in the US through the LatinPass advertising programme. However the scheme would be a lot stronger if the larger carriers, such as Varig, Aerolineas Argentinas, Aeromexico and Viasa, were to join.

In general, carriers in the region have been slow to embrace many airline management techniques. As well as codesharing, these include proper hubbing with regional feed; sophisticated yield management; and outsourcing, though Aeromexico is transferring its IT to EDS.

The future of Aerolineas is now a little clearer, with Iberia selling most of its shareholding to a consortium led by two US banks and Iberia's government owner, Teneo. While Teneo's presence makes it likely that the current management and cooperation with Iberia will continue, the investors are likely to sell their stakes on.

Several carriers are feeling the effects of the US Federal Aviation Administration's sanctions against countries whose governments do not meet international safety oversight standards. BWIA cannot introduce its new Airbuses or enact the codesharing with American, for instance. The FAA's theory is that these carriers will pressure their governments to update their systems; this needs to be done very quickly to avoid competitive disadvantage.

The focus of privatisation has now shifted to airports. Mexico, Brazil and Peru are leading large-scale efforts to privatise airports this year. Airlines will welcome more entrepreneurial management and better access to investment funds, but they will be less enthusiastic if new owners bring higher charges.

Richard Whitaker

Source: Airline Business