30-Nov-2012 9:15 PM

Curacao’s InselAir targets Miami-Venezuela market with launch of new Aruba subsidiary

Analysis

Curacao-based airline group InselAir is finally ready to launch a new airline subsidiary in Aruba after one year of regulatory delays. InselAir also aims to launch a third airline on the island of Saint Maarten in 2013, in line with its ambition to establish a pan-Caribbean airline group.

InselAir Aruba plans to commence services within the next few weeks and launch several routes over the next few months including to Havana, Manaus, Miami, Quito, San Juan and several points in Venezuela. The carrier is now targeting to carry a significant number of passengers between Miami and Venezuela, an important market for InselAir in Curacao and other Caribbean carriers as there is insufficient non-stop capacity in Miami-Venezuela market to meet demand. InselAir Aruba will also take over some of the frequencies between Aruba and Curacao that are now operated by its sister carrier.

Summary

InselAir, a Curacao-based airline group, is launching a new airline subsidiary in Aruba after one year of regulatory delays.
InselAir Aruba plans to commence services within the next few weeks and launch several routes over the next few months including to Havana, Manaus, Miami, Quito, San Juan, and several points in Venezuela.
InselAir Aruba aims to carry a significant number of passengers between Miami and Venezuela, an important market for InselAir in Curacao and other Caribbean carriers.
InselAir Aruba will also take over some of the frequencies between Aruba and Curacao that are now operated by its sister carrier.
InselAir is looking at launching service to Orlando as a potential second destination in the US mainland from its new Aruba hub.
InselAir is considering renewing its fleet with more fuel-efficient aircraft such as Airbus A320s and Boeing 737NGs, as well as 100-seat regional jets.

InselAir Aruba formally secured its air operators' certificate (AOC) on 29-Nov-2012 at a signing ceremony in Aruba with Aruba's aviation minister, according to InselAir CEO Albert Kluyver. The AOC ends a tedious process which began in 2011, when the privately-owned airline group began planning to launch an airline in Aruba. InselAir Aruba initially planned to launch services in early 2012 but Mr Kluyver told CAPA at the recent ALTA 2012 Airline Leaders Forum in Panama that it took much longer than initially anticipated for Aruba aviation authorities to process its AOC application.

The group's plans for InselAir Aruba are primarily the same as initially outlined in 2011. CAPA reported one year ago that InselAir Aruba was planning to launch services in Jan-2012 with a fleet of one Boeing MD80 and two Fokker 50s. At the time four countries were expected to be served as part of the carrier's initial network - Cuba, Curacao, the Dominican Republic and Venezuela - with additional routes, including to Brazil, Ecuador and the US island of Puerto Rico, expected within the first year.

Miami to be important route for InselAir Aruba

Mr Kluyver says the plan is still for InselAir Aruba to serve Curacao, Havana in Cuba, Santo Domingo in the Dominican Republic, San Juan in Puerto Rico and multiple destinations in Venezuela. He says the carrier also now plans to serve Miami, which was not part of the original InselAir Aruba planned route map.

InselAir Aruba planned route map

Aruba is a heavily fragmented market without a single carrier accounting for over 12% of seating capacity, according to Innovata and CAPA data. InselAir Aruba will face competition in about half of its planned destinations. Markets where InselAir Aruba will provide new service include Havana, San Juan and Barquisimeto and Valencia in Venezuela.

Miami, the second largest destination from Aruba based on seat capacity after Curacao, is now served by American Airlines and Surinam Airways while Aruba's Tiara Air serves nearby Fort Lauderdale. InselAir Aruba will also compete against Tiara Air in three of its five potential destinations in Venezuela - Caracas, Las Piedras and Maracaibo. Aruba-Caracas is also served by Venezuelan carriers Aserca and Avior and Brazil's Gol.

Miami has been added to the InselAir Aruba network plan as the group is keen to boost its presence in the US-Venezuela one-stop market. Curacao-based InselAir already serves this market, offering convenient round-trip connections linking Miami with Barquisimeto and Valencia. InselAir's other three Venezuelan destinations - Caracas, Las Piedras and Maracaibo - are currently timed to connect in Curacao with flights within the Caribbean rather than Miami.

Miami is already one of InselAir's largest markets. It currently operates one daily flight from Miami to Curacao as well one daily flight to Port au Prince in Haiti. The two Miami routes are among the carrier's four largest (the others being Curacao-Aruba and Curacao-Valencia).

InselAir top 10 routes by capacity (weekly seats): 26-Nov-2012 to 02-Dec-2012

InselAir also serves Charlotte in North Carolina from Curacao, with connections to Barquisimeto and Valencia. But Charlotte is only served with one weekly flight from Curacao and there are no intentions to expand this service or launch Aruba-Charlotte service.

But InselAir is looking at launching service to Orlando as a potential second destination in the US mainland from its new Aruba hub. Mr Kluyver says if Orlando is launched it will be served with only one weekly flight. Aruba-Orlando is currently served with two weekly flights from Southwest Airlines subsidiary AirTran Airways, according to Innovata data.

InselAir Aruba to serve up to five cities in Venezuela

In Venezuela, InselAir currently serves Barquisimeto, Caracas, Valencia and Las Piedras with one daily flight each. Maracaibo, which was launched on 16-Nov-2012, for now is served with three weekly flights although additional frequencies will likely be added in future. InselAir now uses EMB110s on Las Piedras while it uses a mix of Fokker 50s and MD-80s on its other Venezuelan routes.

InselAir (Curacao) route map: as of 30-Nov-2012

Mr Kluyver says InselAir Aruba plans to also fly to as many of the same five Venezuelan destinations as possible. Mr Klyuver expects some capacity adjustments on existing Curacao-Venezuela routes as new Aruba-Venezuela routes are launched. But the group overall expects to significantly expand capacity to Venezuela and gain a significantly higher share of the lucrative Venezuela-Miami market. Passengers flying between Miami and Venezuela will have the flexibility to transit in Aruba in one direction and in Curacao in the other direction.

Mr Kluyver points out the advantage of offering connections via Aruba is the island has a US customs pre-clearance facility, which will allow InselAir Aruba flights arriving in Miami to be treated like a domestic flight. This makes flying via Aruba less hassling as passengers do not have to endure customs in congested Miami. Aruba also has a bigger point-to-point market than smaller Curacao, helping make Aruba-Venezuela flights potentially more viable than Curacao-Venezuela flights.

Mr Kluyver acknowledges a very small portion of its Curacao-Venezuela passengers are local passengers. He estimates that about 60% of its flights between Curacao and Miami are Venezuelans. Most of the other 40% of the passengers are Americans or from Caribbean countries other than Curacao because Curacao is a very small market. The island has a local population of only about 150,000 people.

InselAir and other Caribbean carriers are able to carry a large amount of traffic in the US-Venezuela market because there is insufficient non-stop capacity to meet the demand. While InselAir is now only offering convenient one-stop flights from the US to Barquisimeto and Valencia, two destinations that do not have any non-stop services to Miami, it is possible to compete with a one-stop product in Miami-Venezuela markets that do have non-stop services given the shortage of non-stop capacity.

As it launches Aruba-Venezuela flights, InselAir is likely to start offering one-stop products in more Miami-Venezuela markets, including markets where there are non-stop options such as Miami-Caracas and Miami-Maracaibo. American Airlines is currently the only carrier offering flights between Miami and Maracaibo while Miami-Caracas is served by American, Venezuela's Santa Barbara and LAN.

Caribbean carriers are likely to continue to expand their operations in Venezuela as it is unlikely new non-stop services will be added between the US and Venezuela. Earlier this year Brazil's Gol and Aerolineas Argentinas attempted to enter the Caracas-Miami market but were turned down. Gol was hoping to make Caracas a stop on flights between Sao Paulo and Miami while Aerolineas was hoping to make Caracas a stop on its new second daily flight between Buenos Aires and Miami. Gol and Aerolineas executives told CAPA at the ALTA Airline Leaders Forum that the US TSA declined to approve their applications to serve Caracas-Miami but Venezuelan authorities may have also rejected their requests if approval from the TSA had been secured.

US carriers, particularly low-cost carrier Spirit Airlines, have also been keen to launch services to Venezuela for some time but have not been able to secure the required regulatory approvals.

InselAir Aruba will not be the first carrier in Aruba to attempt to take advantage of the lack of non-stop capacity between Miami and Venezuela. Tiara Air launched services to Fort Lauderdale in Nov-2012 after taking delivery of its first Boeing 737-300. Tiara also serves Caracas, Maracaibo and Las Piedras in Venezuela and three destinations in Colombia - Armenia, Medellin and Riohacha - according to Innovata schedule data.

InselAir Aruba eyes services to Colombia, Ecuador and Brazil

InselAir also serves Medellin in Colombia as well as Paramaribo in Suriname. Flights between Curacao and Paramaribo, which is InselAir's sixth largest route by capacity, are timed for connections to Miami. There are no plans to also serve Paramaribo from Aruba but the group does plan to launch Aruba-Medellin service. Mr Kluyver also expects Aruba to be linked with Manaus in Brazil and Quito in Ecuador - which would be new destinations and countries for the InselAir Group.

InselAir previously planned to serve Sao Paulo in Brazil but Mr Kluyver says the group decided against launching the route because while some of its MD-80s are equipped with extra fuel tanks and have the range to reach Sao Paulo, the operating economics are not compelling. Belem, in northern Brazil, is now under consideration as a potential second Brazilian destination.

Manaus, Quito and Belem are not expected to be also served from Curacao as the group plans to focus future expansion at Aruba, which has a much larger local market than Curacao, and Saint Maarten. But the new Saint Maarten-based carrier is expected to focus on the intra-Caribbean market and not serve South America or the mainland US.

InselAir plans to launch new airline in Saint Maarten

InselAir already serves Saint Maarten from Curacao and Port-Au-Prince. Aruba-Saint Maarten is also a likely route for InselAir Aruba. The group expects the planned Saint Maarten subsidiary to launch services to several island destinations including Anguilla, Antigua, Dominica, Montserrat, Nevis, Saint Croix, Saint Kitts, Santo Domingo, San Juan and Tortola.

InselAir Saint Maarten: planned route map

InselAir would mainly face competition at Saint Maarten from Caribbean regional carrier LIAT, which operates several of the planned InselAir Saint Maarten routes using 50-seat Dash 8 turboprops. A few of the routes are also served by smaller local carriers using very small turboprops.

InselAir generally uses its fleet of Fokker 50 and Embraer EMB-110 tuboprops for intra-island flights and some short flights from Curacao to the northern tip of South America. The group now has three 50-seat Fokker 50s and three 15-seat EMB-110s in service as well as one spare Fokker 50.

MD80 series aircraft are used for longer routes to the mainland US, some flights to South America and some peak hour inter-island flights. InselAir now operates five MD-80 series aircraft - four MD82s and one MD83.

InselAir fleet: as of Nov-2012

The MD80s are configured with 152 seats, including 15 seats in a premium economy offering which features extra legroom but standard economy width. Mr Kluyver says InselAir, which follows a full-service carrier model, charges about 30% extra for its economy comfort class.

InselAir to expand MD80 fleet and is considering newer aircraft types

Mr Kluyver says a sixth MD80 series aircraft will enter service in Dec-2012 and a seventh aircraft is slated to enter service in May-2013. The capacity generated by the forthcoming expansion of the MD-80 fleet will be directed to the Aruba venture. The group was originally planning to expand its MD-80 fleet in early 2012 but delayed the project due to delays in launching InselAir Aruba.

Mr Kluyver says InselAir is now talking to manufacturers and leasing companies about potentially renewing its fleet with more fuel efficient aircraft. Airbus A320s and Boeing 737NGs are under consideration and would be used for services to the US and potentially open new medium-haul routes to South America such as Sao Paulo. He says InselAir is also considering 100-seat regional jets, which would be used on shorter routes. But Mr Kluyver adds it is not yet decided if the group will opt to acquire any new aircraft type and could opt to stay for now with its existing fleet.

InselAir poised for continued rapid growth as pan-Caribbean strategy is implemented

InselAir has rapidly grown since being established in 2006. The carrier expects to carry about 950,000 passengers in 2012, an increase of about 24% compared to the 768,000 transported in 2011. The group is now targeting 1.1 million passengers in 2013, which would represent a tripling in size since 2009, when 361,000 passengers were carried (See Background information).

With the launch of subsidiaries in Aruba and Saint Maarten, InselAir is taking an ambitious stab at a pan-Caribbean strategy, believing that by having multiple subsidiaries it can reach a level of efficiency other Caribbean carriers have failed to reach. Airlines in the Caribbean generally have been unprofitable in recent years and have shrunk in size, ceding market share to carriers from North America and South America.

Consolidation within the Caribbean has been proposed multiple times in recent years and while there have been a few examples, such as Caribbean Airlines' takeover of Air Jamaica, it has generally failed to materialise in a meaningful way. An airline group such as InselAir establishing a pan-Caribbean group by launching new subsidiaries or affiliates provides an intriguing alternative to the consolidation the region needs.

InselAir Aruba (designator code 8I) will have its own management team but will share resources with its sister carrier in Curacao (designator code 7I) and later its sister carrier in Saint Maarten. The group will also have single teams overseeing network development, commercial aspects and strategy for all carriers.

InselAir looks for codeshare partners

InselAir also has recognised it cannot provide a sufficient network in the region on its own. The group has been aggressively pursuing partnerships with other carriers within the region and beyond. Mr Kluyver told the ALTA Forum that his vision when he started InselAir six years ago was for all airlines in the Caribbean to form an alliance and connect with each other.

The first step of this alliance took place about one month ago when InselAir began codesharing with Surinam Airways. This marks the first time InselAir has had a codeshare with another airline. The two carriers, which already interlined, compete on the Paramaribo-Curacao route and soon the Aruba-Miami route. They also compete in the Paramaribo-Miami market, with Surinam Airways operating non-stop services and InselAir offering a one-stop product.

"It's the way we should be in Caribbean," Surinam Airways CEO Ewald Henshuys told the Caribbean CEO panel at the recent ALTA Airline Leaders Forum. "We should join together to stay in business. When you think of the costs small airlines go through there's no doubt we should join and buy cheaper and get our business organized to stay in the business."

On 23-Nov-2012 InselAir also announced an expansion of its partnership with KLM to include a codeshare. The two carriers have been interlining since Jul-2011.

InselAir also has interlines with Air France, Avianca, Gol, US Airways and Winair. The group is keen to upgrade some of these into codeshares as well pursue tie-ups with other carriers.

As the Caribbean is a region that has had many more airline failures than successes, the InselAir group will certainly face challenges as it looks to grow organically as well as virtually through partnerships. Even once it establishes three carriers in three islands, the group will be a tiny operator relative to its competitors in North America and South America. But the model being pursued by the Kluyver family is refreshing and represents a step in the right direction for the Caribbean's struggling aviation industry.

Background information

InselAir annual passenger growth: 2006 to 2013*

InselAir capacity share (% of seats) by region: 26-Nov-2012 to 02-Dec-2012