LAN Colombia

Colombia's aviation market poised for more rapid growth in 2013, led by VivaColombia, Avianca & LAN

Colombia recorded 15% growth in domestic passenger traffic in 2012 and should see more double-digit growth in 2013 driven partially by expansion at low-cost start-up VivaColombia. The Colombian international market also grew by 13% in 2012 and should see more rapid growth in 2013 driven partially by expansion at LAN Colombia.

Colombia’s strong economy and growing middle class population provide favourable market conditions. The rise in Colombia’s LCC penetration rate, which has always been significantly lower than Latin America’s other two major markets, is also stimulating demand as VivaAerobus brings low fares to more domestic routes. But competition in Colombia is intense, making it difficult to achieve profitability in the domestic market.

Avianca-TACA primes for re-branding and intensifying competition with LATAM

Avianca-TACA will come full circle during 2H2013 as its various airlines unify under the Avianca brand more than three years after the Avianca-TACA merger kickstarted consolidation in Latin America and drove the decision by LAN and TAM to form what is now the region’s powerhouse LATAM Airlines Group. During 2013 the competition between the two largest airline groups in Latin American will only intensify in the markets where they already compete fiercely – Colombia, Ecuador and Peru.

With Avianca-TACA completing its merger more than two years ahead of LATAM, Avianca-TACA has the benefit of harvesting a combined network whereas LATAM is just beginning to ferret out the benefits of its newly combined network resources.

In addition to continued competitive pressure from LATAM during 2013 Avianca-TACA will also encounter some new competition on international flights from Ecuador and some pressure from startup VivaColombia in its largest market Colombia. At the same time Avianca-TACA continues to battle infrastructure constraints at its largest hub Bogota, which could result in further expansion at its Lima and San Salvador hubs.

Pressure mounts on Star and SkyTeam to secure Brazilian members as TAM confirms switch to oneworld

LATAM Airlines Group announced on 07-Mar-2013 that its TAM, TAM Paraguay and LAN Colombia subsidiaries would join its sister carriers in oneworld, confirming moves which had been considered a foregone conclusion for 18 months. The Star Alliance now faces the risk of not having a member in Brazil, one of the world’s most important growth markets, after TAM shifts from Star to oneworld in 2Q2014. But the void will not last long as Brazil’s fourth largest carrier, Avianca Brazil, will almost certainly join its sister carriers in Star, potentially by the end of 2014.

Meanwhile, Brazil’s second largest carrier Gol continues to be wooed by SkyTeam. With TAM moving to oneworld and Avianca Brazil expected to join Star, the stakes mount for SkyTeam while the benefit of maintaining independence for Gol diminishes.

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

The Colombia-US market is poised for rapid growth following the implementation of open skies between the two countries on 01-Jan-2013. JetBlue and LAN Colombia have already unveiled plans to add services in the Colombia-US market during 2013 and other carriers, including market leader Avianca, will likely follow.

JetBlue Airways plans to add a third Colombian destination, Medellin, from 13-Jun-2013 while LAN Colombia plans to deploy its newly acquired fleet of 767s on US routes. JetBlue has rapidly grown in Colombia since Bogota became its first destination in South America in 2009. LAN Colombia began serving the Bogota-Miami route in early 2012 with A320s and plans to transition these flights to 767s as well as launch new US routes.

There was 8% passenger growth in the Colombia-North America market through the first 10 months of 2012 to 2.1 million passengers, according to Colombian CAA data. The average load factor in the market was 84%, which suggests the market remains undersupplied. (The Colombia-North America market includes flights to/from the US and Canada but Canada only accounts for 3% of the total market).

VivaColombia shows minimal market disruption as Colombian traffic posts solid growth

Upstart VivaColombia appears to be creating little disruption in Colombia’s domestic market after the low-cost carrier modelled after sister Mexican carrier VivaAerobus made its debut in May-2012. After just a month of operations it built up a roughly 3% market share while its two main rivals Avianca and LAN Colombia increased their share. Meanwhile, Copa Colombia continues to cede domestic market share as it continues a focus on redeploying domestic capacity to international markets.

But early data do not constitute a trend, and with less than a few months in operation VivaColombia has lots to prove in order to declare that a low-cost model is viable in Colombia. The carrier already is making some network tweaks, and VivaColombia needs to successfully execute its strategy of focusing on thinner, largely leisure-oriented routes before it can conclude it has a permanent place in the Colombian market.

LAN-TAM parent LATAM’s first combined financials offer a mixed bag behind consolidated net profit

Latin America’s powerful new force LATAM Airlines Group recorded USD50 million in net income and USD23 million in operating income for 2Q2012, the first time the combined entity of LAN and TAM has reported consolidated quarterly results since the close of their historic merger on 22-Jun-2012. While the combined result was positive, the separate performance of each carrier was less favourable with TAM recording a USD14 million operating loss for 2Q2012 and LAN only turning a small operating profit of USD37 million. The combined result posted by LATAM only includes eight days of contribution from TAM as the merger was finalised near the end of 2Q2012.

TAM posted a BRL928 million (USD458 million) net loss during 2Q2012 driven by foreign exchange currency challenges and losses from the carrier’s fuel hedging portfolio. LAN recorded a 68% slide in net profits to USD5 million, driven by weaker conditions in its cargo business and one time costs associated with union negotiations and the merger with TAM. Going forward the combined company plans to focus much of its 3%-4% capacity growth in 2012 on the strong north-south routes to North America.