Tough times for local airlines have prompted moves in Latin America's two largest markets to limit competition, regulate domestic fares and revise airfare bands for local routes.

In Brazil, the national development bank, BNDES, which has committed $600 million to Varig's rescue, is voicing concern about the harmful effects of competition on local airlines. Bank vice-president Darc Costa claims "predatory competition" is to blame for Transbrasil's demise and Varig's woes.

BNDES has authored a proposal to restructure the industry. Under it, the government would designate only one airline for all international routes, and major domestic services would be converted into a "regulated oligopoly" with no more than two carriers per route.

This has sparked a debate. Joao Grandino Rodas, president of Brazil's antitrust agency, says: "We do not see that limiting competition is a solution to the problems of the industry." Local aviation analyst Mauricio Levi calls the proposal "an incentive to create inefficient companies".

Meanwhile, Mexico's transport secretary, Pedro Cerisola, has plans to re-regulate domestic fares. After local airlines suffered large losses last year, the transport secretary started drafting what he calls "a profound structural revision" consisting of airfare bands for each local route. Cerisola insists these are needed to prevent further damage by fare wars.

Patricio Sepulveda, speaking from long experience rather than as IATA's Latin American regional director, warns against jumping to conclusions about such measures. If airlines would fail without them, they may be in the best long-term interests of consumers. That, he claims, is still the ultimate test.


Source: Airline Business