Bolivia's small but colourful market is poised for more expansion this year as the battle between the country's new government-owned flag carrier and largest private operator enters a second phase.
The domestic Bolivian market has grown roughly 35% since government-owned Boliviana de Aviacion launched services in March 2009. The government's controversial decision to launch BoA was vehemently protested by Aerosur, a family-owned carrier which has been around for almost 20 years and became Bolivia's only major carrier after the collapse of Lloyd Aero Boliviano.
Santa Cruz-based Aerosur is still Bolivia's largest airline, transporting 1.2 million passengers in 2010, according to vice-president commercial Miguel Angel Roca. But domestically Aerosur and Cochabamba-based BoA are now roughly equal, each carrying about 700,000 domestic passengers last year.
Roca says profitability on domestic routes has eroded due to the drop in fares precipitated by BoA's entrance. Aerosur has repeatedly claimed that BoA has illegally flooded the market with irrational fares and more seats than the market can support, but Aerosur is refusing to cut capacity.
"We are still making the same flights. Domestically we have to compete. It's very hard to understand," Roca says, referring to the government's involvement.
Roca expects Aerosur's traffic will increase 10% in 2011, but this will be driven by international expansion. Aerosur in recent months has been focusing its expansion in the international market due to the intensifying domestic competition. Frustratingly for Aerosur, BoA is starting to expand internationally although this gets the carrier away from its original mission of stimulating the domestic market.
BoA chief executive Ronald Casso says the carrier transported 740,000 passengers last year, compared with 261,000 passengers in the nine months it operated in 2009. Nearly all its traffic so far has been domestic and Casso expects BoA's domestic traffic will grow another 10% this year. BoA operates 22 flights a day to six domestic destinations. Casso says BoA's high domestic load factor, which averages 82% to 83%, proves the market can support more capacity.
"The objective of the creation of the company by the state was to create better conditions for the air transport system and to reduce the fares and grow the market. I think we have complied with that objective," Casso says. "We reduced fares by 16% in the Bolivian market. We present a regular service with a good average on-time performance. That service and better conditions stimulated the market."
Casso predicts BoA will eventually capture 70% of the domestic market and fly one million domestic passengers annually. But Casso also sees BoA having a growing international role.
BoA last year launched its first two international services, to Buenos Aires and São Paulo. Casso says BoA aims to begin serving Lima in May or June and is studying other potential new international destinations, including Cuba, the Dominican Republic, Mexico, Panama and Venezuela. He points out most of these destinations have not been served by a Bolivian carrier since LAB, which gradually shrunk its network after being privatised in the mid-1990s and suspended remaining scheduled operations in 2007.
Casso says BoA is now studying adding a Boeing 767, which it will use initially to add capacity on South American routes, but later to potentially launch flights to the USA and Europe. It also has started evaluating potential replacements for its 737-300s. BoA in March added its fifth 737-300 and aims to add one more 737-300 by the middle of this year.
Aerosur expanded into long-haul services in 2006, when it launched a flight to Madrid with a Boeing 747-400 after LAB was forced to return its widebodies. Aerosur last year took its second widebody, a 767-200, primarily to increase capacity to Miami. Roca says a second 767-200 will be added this year and could launch flights to Barcelona.
In February, Aerosur added Washington Dulles, which it serves with 737-300/400s via Panama, but may later be upgraded to a non-stop 767 service. The carrier also serves Buenos Aires, São Paulo, Asuncion, Chiclayo and Salta.
Roca says Aerosur plans to take its fifth 737-300/400 later this year as it continues to gradually renew its ageing fleet of 737-200s and 727-200s. It still operates two 737-200s and two 727-200s.
Aerosur and BoA are bitter rivals, with each claiming it is bigger domestically. It is impossible to know for sure as the Bolivian DGAC has not formally reported figures since 2008, when only 1.16 million domestic passengers were transported. In addition to Aerosur and BoA, the market is now served by a few regional carriers that fly turboprops into small airfields not accessed by the all-jet fleets of the two main carriers.
Aerosur also has questioned BoA's claims that it was profitable in 2009 and 2010, believing BoA's fares are too low to be in the black. But Casso is adamant BoA is profitable and says the carrier has not required any funding from the government since the initial pre-launch tranche of $15 million.
However, Casso reveals the government has agreed to put in another $10 million during the first half of this year, which will be used to invest in a new maintenance hangar and training centre. The maintenance centre, which is to open next year in Cochabamba, will allow BoA to start in-sourcing heavy checks and potentially pursue third-party MRO business.
Casso says preliminary figures for 2010 show BoA turned a profit of $3-4 million on revenues of $49 million. "But the most important thing for us is to establish the company and grow," he adds.
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