Updated with Gol's new delivery schedule
Airframers expressed confidence that Latin America’s airlines will face brighter prospects in 2017, as the region continues to face economic difficulties and political uncertainty.
“It will be a year of transition [in 2016],” says Rafael Alonso, Airbus’ president of Latin America and the Caribbean. “But we are not afraid… we should see some recovery in 2017.”
Alonso was speaking to reporters on the first day of the FIDAE air show in Santiago, which begins as Latin American airlines emerge hurting from a year of lower yields and slimmer margins. Depreciation of the region’s currencies as well as political uncertainty in some countries had also impacted the carriers’ financial results.
In an indication of the difficult times, several airline chiefs in the region have cancelled their attendance at the air show, opting to stay home to focus on more pressing matters.
Still, aircraft manufacturers appear largely optimistic about the road ahead, despite recent moves by the region’s airlines to defer aircraft deliveries in the coming years.
Boeing’s president for Latin America and Brazil Donna Hrinak says the airframer wants to take a longer term view of the region. “The short term is difficult,” she acknowledges. But she points to the cyclical ups and downs the region has gone through in the last four decades, expressing belief that Latin America will bounce back. Hrinak is a former US diplomat with extensive experience in Latin America.
Most of Latin America’s major carriers have decided in the past year to defer aircraft deliveries for 2016, with some also pushing back deliveries in the years beyond that. Brazil’s carriers have been hit especially hard, due to the severe devaluation of the Brazilian real and the economic recession in the country. Ongoing calls for Brazil’s president to step down have cast further gloom over the region’s largest air passenger market.
Gol, the Brazilian carrier which has seen the most impact on its bottom line, has said it will take delivery of only one Boeing 737-800 in 2016 and 2017, instead of 15. It also plans to sell aircraft and sublease jets to foreign carriers to reduce its capacity. The airline, which has reported deeper financial losses in 2015, will further cut domestic departures in the first half of 2016.
“Gol is in a very difficult situation,” says Eric Hild, Boeing commercial airplanes sales director for Latin America. “We will work with them to match capacity with demand.”
Both Hild and Airbus’ Alonso give credit to Latin American airlines for taking steps to reduce aircraft deliveries and reduce capacity. “Airlines in the region are well managed,” says Alonso. “There has been an incredible correction in the number of planes in Brazil in the last few months.”
Airbus and Embraer are both forecasting strong growth for the region in the next two decades, despite the troubling outlook in the immediate term.
In its latest market forecast, Airbus sees demand for 2,540 new aircraft in the region between 2015 and 2034. A majority of this - or 1,990 aircraft - will be narrowbodies. Airbus holds about a 53% share of the in-service fleet in Latin America today.
Embraer foresees that Latin America will take delivery of 720 new aircraft in the 70 to 130-seat market in the next 20 years. This will make up about 11% of the demand for such aircraft over the same period.
All three airframers point to a growing middle class in the region as among the several driving factors behind the growth in the region. Airbus also points to the potential to grow international and intra-regional flights. It estimates that only 43% of the Latin America’s top 20 cities are now connected by once daily service.