Colombia-US open skies to usher in new era of growth, led by JetBlue and LAN Colombia

JetBlue has enjoyed load factors approaching 90% on Colombian routes

Avianca and JetBlue both recorded 87% load factors in the Colombia-North America market through the first 10 months of 2012. Avianca is the largest carrier in the market, accounting for 43% of passengers carried. American, the second largest carrier in the market with a 19% share of passengers carried, recorded an 84% load factor (see background information).

JetBlue also recorded a load factor on Colombian services of 89% in 2011, when it operated just the Orlando-Bogota route. JetBlue in 2011 had the highest load factor among the over 25 airlines serving Colombia. Through the first 10 months of 2012, only Air France (89%) had a higher load factor.

With such high load factors it is no surprise that JetBlue added a daily Fort Lauderdale-Bogota service in May-2012 and launched three weekly flights on the New York-Cartagena route in Nov-2012.

See related article: Colombia could serve as JetBlue's Latin America growth platform

JetBlue is the only carrier serving New York-Cartagena but competes against Spirit Airlines and Avianca on Fort Lauderdale-Bogota. JetBlue will also compete against Spirit on its new daily Fort Lauderdale-Medellin route.

Spirit currently serves Fort Lauderdale-Medellin with six weekly flights, according to Innovata. Spirit carried 70,000 passengers on the route through the first 10 months of 2012, a 16% increase over the same period of 2011. Spirit's load factor for the route was 89% in both the first 10 months of 2011 and the first 10 months of 2012, making the market attractive for JetBlue.

Medellin-Miami, which is served by American and Avianca, also recorded an average load factor of 89% in the first 10 months of 2012. This shows the South Florida-Medellin market should be able to absorb the extra capacity being provided by JetBlue, particularly as JetBlue's relatively low fares should stimulate demand.

Spirit and JetBlue have been the only LCCs serving the Colombia-US market since late 2010, when Colombian LCC Aires was acquired by LAN and began transitioning to a full-service carrier. Aires served several cities in Colombia from Fort Lauderdale and also linked Bogota and New York. After acquiring Aires, LAN suspended the New York route and all the Fort Lauderdale routes except Bogota. In early 2012, after completing its rebranding as LAN Colombia, the carrier shifted the Fort Lauderdale-Bogota service to nearby Miami.

LAN Colombia looks to expand US operation

LAN Colombia now operates one daily flight on the Bogota-Miami route with A320s. But LAN Colombia, which took delivery of its first 767 in Dec-2012, has said it intends to upgrade its Miami flight to 767s. The carrier is now getting acclimated to the 767 by operating it on some flights between Bogota and Santiago, a route normally served with 767s from LAN Chile.

Up-gauging Bogota-Miami to 767s will allow LAN Colombia to close the gap with Avianca and American. Avianca operates two daily A319 flights and one A330 flight, giving it a 50% share of seat capacity in the Bogota-Miami market. American now serves Bogota Miami with two daily 757 flights and one daily 767 flight, giving it a 42% share of capacity in the market.

Bogota-Miami is already the largest route between the US and Colombia with 551,000 passengers carried through the first 10 months of 2012. Fort Lauderdale-Bogota is the third largest route, slightly behind New York-Bogota, with 208,000 passengers carried through the first 10 months of 2012. The average load factor on Miami-Bogota was 84% while on Fort Lauderdale-Bogota it was 81%

LAN Colombia also plans to take a second 767 in 2Q2013. The carrier is looking at re-opening flights to New York using its second 767 and is also considering launching services to Los Angeles. Currently no carrier offers non-stop services between Los Angeles and Bogota as Avianca dropped the route a few years ago.

LAN, if it launches Bogota-Los Angeles, will be able to leverage its existing Los Angeles operation, which includes flights to Lima and Santiago. LAN also already serves Lima and Santiago from New York.

Currently there are about 31,000 weekly one-way seats between Colombia and the US, according to Innovata and CAPA data. LAN Colombia is the smallest of all the carriers in the market, with only about a 3% share of capacity.

Colombia to US capacity by carrier (one-way seats per week): 19-Sep-2011 to 07-Jul-2013

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Source: CAPA - Centre for Aviation & Innovata

According to Colombian CAA data, LAN Colombia carried 59,000 passengers to and from the US through the first 10 months of 2012, which also equates to a 3% share of the market. Its average load factor to and from the US was 78%, which was lower than all six of the other carriers in the Colombia-US market.

US-Colombia market is under-penetrated by LCCs

With Colombia's middle class growing, discretionary travel to the US is expected to expand, fuelling rapid growth. LCCs are particularly well positioned to capture this growth but currently only account for 18% of total capacity in the Colombia-US market

While the former Aires moved upmarket as it became LAN Colombia, Colombia again has a LCC in VivaColombia. But VivaColombia, which launched services in May-2012, plans to focus in the foreseeable future on the domestic market.

See related article: VivaAerobus and VivaColombia focus on domestic expansion as Irelandia ponders third Viva franchise

As a result JetBlue and Spirit will likely continue to be the only LCCs operating in the Colombia-US market under the new open skies regime. JetBlue currently has an 8% capacity share and Spirit has a 10% capacity share.

JetBlue is particularly well positioned as it has hubs in three of the biggest markets for Colombia-US travel - South Florida, New York and Orlando. Spirit also is based in Fort Lauderdale but is not focusing on Colombia like JetBlue currently is.

Spirit expanded rapidly in Colombia between 2007 and 2010, launching service to five destinations. Spirit currently serves four destinations in Colombia - Armentia, Bogota, Cartagena and Medellin - as Barranquilla was dropped. Spirit's entry into the Colombian market was made possible by a more liberal bilateral agreement, which was signed in 2007 and was followed by a gradual opening of the market. Eventually an open skies agreement was signed in 2011 with full implementation and no restrictions on expansion as of Jan-2013.

Spirit had the opportunity during the last two years to further expand its Colombian network but has taken a hiatus from pursuing growth in Colombia and Latin America generally. Spirit has instead been focusing the last two years on adding domestic routes from fortress hubs of US major carriers such as Dallas. Spirit's capacity in the Colombian market for Jan-2013 is identical to the capacity it provided a year ago in Jan-2012.

See related article: Spirit assures opportunities abound to stimulate traffic in the US market

While Spirit has focused more on domestic expansion, JetBlue has rapidly built up its international operation at Fort Lauderdale. JetBlue now accounts for 20% of international seat capacity at Fort Lauderdale, compared to 28% for Spirit. JetBlue says destinations in the Caribbean and Latin America now account for almost one-third of its network.

While both carriers are LCCs, Spirit and JetBlue generally pursue different segments of the market. Spirit is an ultra low-cost carrier while JetBlue offers some frills including seatback IFE, snacks, drinks and free checked baggage. JetBlue follows more of a hybrid model, pursuing corporate traffic and partnerships with other carriers.

JetBlue initially was the only carrier serving Orlando-Bogota but its quick success on the route prompted Avianca to launch service to Orlando in 2011. According to Colombian CAA data, 116,000 passengers flew between Orlando and Bogota through the first 10 months of 2012 with an average load factor of 87%.

Plenty of opportunities to grow traffic between Colombia's secondary cities and the US

Orlando in recent years has become an increasingly popular destination for Latin American carriers with TACA, TAM and Volaris also launching service to the central Florida resort city. The Orlando-Colombia market will likely continue to grow rapidly, attracting more service from JetBlue and Avianca, as more Colombians can afford holidays in the US.

Colombia is a country of several medium-size cities, some of which are growing rapidly and have expanding middle class populations. VivaColombia is targeting many of these cities with new point-to-point domestic routes which bypass congested Bogota. More international routes connecting these cities with destinations such as Orlando should become viable, particularly if fares are low enough to stimulate demand.

Bogota currently accounts for approximately 70% of traffic between Colombia and the US. While US-Colombia open skies provides opportunities to expand further in Bogota, the airport is congested and there are potentially more promising growth opportunities in other Colombian cities.

Of the seven carriers serving the Colombia-US market, Bogota is currently the only gateway for three of the carriers - Delta, United and LAN Colombia. More US carriers will likely look to open up new Colombian gateways, following the recent lead of JetBlue. Spirit may also revisit Colombian expansion now that open skies is here while Colombian carriers, which have an advantage as Colombians and Colombian Americans account for the majority of traffic between the two countries, will also be keen to tap into growing demand for US-Colombia services.

Background information

Colombia-North America passenger traffic by carrier: Oct-2012 vs Oct-2011 and Jan to Oct-2012 vs Jan to Oct-2011

Source: Colombian CAA

Colombia-North America passenger traffic by route: Oct-2012 vs Oct-2011 and Jan to Oct-2012 vs Jan to Oct-2011

Source: Colombian CAA