AW&ST om Argentina

Low-fare Carriers Conquer Argentina’s Air Transport Market  Jens Flottau Just three years ago, imagining low-cost air travel in Argentina seemed all but impossible. The country’s then President Cristina Kirchner favored a highly protectionist economic policy that choked off development of air transport, while state-owned Aerolineas Argentinas survived on a large annual subsidy. It was an environment in which free enterprise could not thrive. Fast forward to 2018 and the era of business-friendly President Mauricio Macri, and things have begun to change substantially. Macri’s much more open economic policies have started a major transformation in many sectors, and certainly in air transport. Once a cozy monopoly for Aerolineas, then a hard-fought duopoly with LATAM Airlines, the market has now opened to many more competitors. Avianca Argentina is building a regional network based on an incoming fleet of ATR 72s. Andes Lineas Aereas plans to introduce international routes to Montevideo, Uruguay and Asuncion, Paraguay, this year. But the biggest structural change is the advent of the low-cost carriers (LCC): Flybondi launched its first domestic services in late January and Norwegian Air Argentina (NAA) plans to follow in June. Argentinian air transport market to grow massively following economic policy reform LCCs Flybondi and Norwegian Air Argentina to capture large part of domestic market Government pledges to reduce support for national carrier Aerolineas Argentinas In 2017 alone, the Argentinian government awarded approvals for 630 new routes to 13 different airlines, most of them very small. The numbers indicate a huge interest in capturing a share of what airlines consider to be the next big thing in Latin American air transport. And they have good reasons to be optimistic: Argentinians have among the highest per capita income in the region, yet travel only half as often as their Brazilian neighbors. Air transportation is an obvious means of travel in a country as large as Argentina, where 50 million people annually take long-distance bus trips because of high air fares. Some of the north-south trips can take up to 60 hr. But airlines believe they can offer competitive prices. “We can be lower than the bus fare and still make a profit,” Flybondi Executive Chairman Mike Powell says. The government expects air traffic in Argentina to triple by 2019. NAA may well be the most unusual new entrant into the market, with its European low-cost carrier parent. But the group’s decision to launch a subsidiary in Argentina is also further proof that airlines are willing to bet big money on the country’s air transport sector. But its efforts show that starting up an airline there is still a painful exercise, at least initially.

 

Norwegian Air Argentina expects to start commercial services in June. Credit: Norwegian Air

 

NAA was granted an air operator certificate (AOC) on Jan. 26. The company was also granted authority to fly on 152 routes, including 72 domestic and 80 international markets. The first Boeing 737-800 has arrived, although local operations are now not planned to start until June. The launch of NAA is complemented by, and linked to, Norwegian’s entry into the country’s long-haul market. In February, the carrier launched four weekly flights from London-Gatwick Airport to Buenos Aires using its fleet of Boeing 787s. NAA will not only offer low-cost point-to-point services, but also connecting markets onto its sister carrier and beyond. NAA plans to build up a fleet of about 20 aircraft within its first year of operations, and then continue to grow further. ​Flybondi expects to operate a fleet of about 30 aircraft by the end of 2021. The carrier started scheduled flights on Jan. 26 with the first service on the Cordoba-Iguacu Falls route within Argentina. Cordoba, the nation’s second--largest city, is Flybondi’s first base, but operations will be heavily focused on Buenos Aires’ El Palomar Airport, in the process of being developed for civil use. The airline, backed by Cartesian Capital Group, Yamasa Group and private investors, received its AOC on Jan. 10. The carrier has also been awarded rights for 42 domestic and 43 international routes.

Flybondi is focusing on the Boeing 737-800 for now. The airline has secured the first five aircraft on lease from SMBC, Avolon, DVB, GECAS and BBAM. It plans to add another five aircraft by the end of the year. Powell says the company may place an order for either the Boeing 737 MAX or the Airbus A320neo before the end of the year. The airline’s main base will be El Palomar Airport. The facility is currently a military base that is being taken over by civil airport operator Aeropuertos Argentinas 2000. It is 14 km (9 mi.) from the city center, closer than Buenos Aires’ main international airport Ezeiza, but farther out than downtown airport Aeroparque. As many medium-haul international flights are transferred from Aeroparque to Ezeiza, Powell sees El Palomar as well positioned to capture part of that market.​ Flybondi is following the ultra-low-cost model, with some exceptions as it is forced to perform line maintenance and other functions in-house that would typically be outsourced. But establishing the LCCs will not be easy. First, pilots have to be Argentinian nationals by regulation. For Argentinian pilots that now work abroad, Flybondi, Norwegian, Andes and the other carriers could provide an opportunity to return home. Regulation has eased, but it has not gone away. The government still defines minimum fares per route. Flybondi is currently forced to sell seats at average of $50, but would like to lower that to about $35 to drive load factor and promote its services. The government is looking at revising the regulation, but if it does not, Flybondi is prepared to take legal action. There are also concerns about infrastructure. Most airports, like El Palomar, are in desperate need of upgrading. And while Aeropuertos Argentinas 2000 has promised big investments into the facilities in its portfolio, they may not come fast enough to avoid disruption and bottlenecks. The country’s air traffic management system is also prone to failures and capacity constraints—a painful reminder that the era of strong regulation and operational efficiency is not long past. Then there is the question of how much government support Aerolineas Argentinas will still receive, and how that will continue to distort the market. According to local media reports, the airline received $170 million in 2017 and will get about $90 million in direct subsidies this year. Financial assistance is not the only looming issue. LATAM Airlines Argentina went through an extensive legal battle in 2013 over the use of a maintenance hangar at Aeroparque, because it was not a state-owned airline. The new competitors have to hope that under Macri’s economic reforms such extreme cases of protectionism are a thing of the past.