VivaColombia is a low-cost carrier based at Medellin José María Córdova International Airport, Colombia. The carrier is the only LCC in Colombia since former LCC Aires has adopted the FSC model following its sale to LAN and rebranding as LAN Colombia. VivaColombia had initially planned to operate on domestic trunk routes from Bogotá, but later changed its network strategy after receiving investments from VivaAerobus founders Irelandia and IAMSA.
Location of VivaColombia main hub (Medellin Jose Maria Cordova Airport)
LCCs will continue to evolve into hybrids of the original core model. CAPA and OAG consider VivaColombia fits the LCC profile and it is included in our reporting on this basis. Please note: when reporting for an airline is changed from or to LCC the historical data is not affected and it can lead to a distortion in the current reported data. Contact us if you have any queries.
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VivaAerobus joins Volaris and Interjet in placing large A320neo order. Can Mexico sustain all three?
Competition in Mexico’s dynamic market is set to intensify as the country’s smallest low-cost carrier is poised to at least triple in size over the next eight years following a landmark aircraft order with Airbus.
VivaAerobus has ordered 52 A320s, allowing for a rapid replacement of its current fleet of 19 737-300s and significant growth. VivaAerobus is currently a relatively small player in the Mexican market with only a 13% share in the domestic market and is a non-factor internationally as it has just one trans-border route.
VivaAerobus is now seeking to follow its closest competitor, Volaris, with an initial public offering which should provide the funds to support accelerated fleet and network growth. Market conditions in Mexico have improved significantly in recent years but there is a risk of a return to over-capacity and irrational competition given the fleet expansion plans at the country’s four main carriers.
Latin America provides huge growth opportunities for low-cost carriers given the region’s expanding middle class and miniscule LCC penetration rate outside the two largest domestic markets. The existing small field of six LCCs are best positioned to benefit from the anticipated growth and leverage their first mover advantage. Four of the carriers are eyeing initial public offerings (IPOs), which could give them the cash to accelerate expansion in their home markets and regionally.
Latin America’s LCC sector is now concentrated in only three countries – Brazil, Mexico and Colombia. The other 18 countries that comprise Latin America (excluding the Caribbean) account for about 35% of seat capacity but, remarkably, do not have a single local LCC. These markets are only served by foreign LCCs, resulting in limited and in some cases no LCC services at all. The overall LCC penetration rate in these 18 countries is approximately 2%.
Growth in Colombia’s domestic market continued full steam ahead during the first five months of 2013 as the country's passenger growth jumped 21% to roughly 8.5 million. This follows already strong 15% growth in domestic traffic during 2012, when the country's airlines transported close to 19 million domestic passengers.
The expansion reflects Colombia’s stature as one of the fastest growing domestic markets in the world, fuelled by solid economic growth, a rising middle class and pent-up demand and opportunities for penetration by low-cost carriers. Presently, VivaColombia is the only carrier operating under a low-cost business model in the country. While it does operate on some of Colombia’s trunk routes, VivaColombia is designing its network around a point-to-point framework to bypass the country’s busier and more congested airports, namely Bogota.
Colombia’s domestic market has undergone a subtle transformation during the last few years as LAN, which is now part of LATAM Airlines Group, purchased low-cost carrier Aires, overhauled its operations, adopted the full-service model and rebranded the carrier as LAN Colombia to solidify a presence in the increasingly important Colombian market. Copa Colombia (formerly Aerorepublica) opted to shift its focus to international operations while VivaColombia introduced service with the goal of replicating the low-cost business model its sister carrier VivaAerobus has forged in Mexico.
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 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.
VivaAerobus and VivaColombia are planning further expansion in the Mexican and Colombian domestic markets in 2013 while they remain separate entities without any network or operating synergies. But the two low-cost carriers could start exploring a closer partnership in 2014 as VivaAerobus looks to potentially join VivaColombia as an A320 operator and launch services to other Latin American countries.
Meanwhile, Irish investment firm Irelandia Aviation, which owns stakes in VivaAerobus and VivaColombia, continues to study establishing a third Viva affiliate in a new Latin American market. With the Viva brand already established in Colombia and Mexico, and as the Brazilian market is currently over-saturated, smaller Latin American markets that lack any local LCCs are being studied. The Viva group could ultimately consist of several LCCs, with most of the carriers being small in size but enjoying economies of scale by being part of a pan-Latin American group.
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