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Aviation in Chile operates under the open skies multilateral agreements of the Andean Pact and the Mercosur Fortaleza accord. The main airport is in the capital Santiago – Comodoro Arturo Merino Benítez International Airport, better known as Santiago International Airport – which is the hub for national carrier LAN Airlines. The second key airport is Carriel Sur International Airport, which mainly serves domestic traffic for LAN, LAN Express and Sky Airlines.
The Chilean Air Traffic Controllers' Association (Colegio de Controladores de Tránsito Aéreo de Chile AG) controls air navigation service for Chile and the Directorate General of Civil Aeronautics is the regulatory body.
Airports in Chile
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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%.
Chile’s domestic passenger market grew by 16% in 1H2013, making it once again one of the fastest growing in Latin America. Chile’s domestic market has now nearly doubled in size since 2009 with annual growth of nearly 20% in 2010 to 2012.
LATAM Airlines Group subsidiary LAN continues to dominate Chile’s domestic market, accounting for 75% of the 4.6 million total domestic passengers in Chile during 1H2013. LAN’s domination of the market is scaring away potential new entrants, including LCC groups such as Viva.
Chile and Russia are now the only top 25 domestic markets in the world that are not served by a single LCC. Russia is expected to see a return of LCC activity within the next year, leaving Chile alone on this undistinguished list.
Chile has recorded 17% passenger growth for the second consecutive year, making it the fastest growing market in Latin America. The rapid growth in Chile is somewhat surprising as it is one of the more mature markets in Latin America and the market is dominated by one player, LAN, which can have a stifling impact on competition. But the small country of 17 million continues to support rapid increases in travel propensity, which is already the highest in Latin America, driven by a strong economy and Chile’s unusual geography.
After recording flat traffic figures for 2009, Chile’s aviation market has grown by 57% over the last three years to 15.2 million passengers, according to Chilean Civil Aeronautics Board data. Growth in 2011 and 2012 was an impressive 17% while 2010 ended with 11% growth despite the impact of a devastating earthquake which struck Santiago in Feb-2010.
Cathay Pacific's short-term focus is regional Asia, which it will continue to grow in 2013, although overall the airline expects a slight decrease in capacity as it looks to improve profitability on its long-haul network by replacing maintenance-intensive 747-400s with new 777-300ERs.
But in the long-term the carrier's focus is very much on leveraging its short-haul network to feed long-haul flights, meanwhile re-examining its short-haul strategy.
Cathay is once again evaluating the A380 and 747-8I to see if it needs to grow through capacity increases, stick to its preference for frequency and/or consider new destinations many of its passengers currently reach via connections. The airline is also considering how it might tap into the lucrative Asia-Latin America market. And of course, Cathay must consider what role it will have with alliances.
Yet underpinning these growth possibilities is the fact that Cathay's short-haul market is under pressure, and this will only intensify as Chinese airlines and LCCs continue to gain strength in its home market – an uncomfortable reality Cathay has been shy of admitting.
Air traffic in the Peruvian domestic and international markets continues to grow steadily as overall traffic growth in Latin America remains strong despite weakening economies in Europe. Through the first five months of 2012 Peru recorded 14% growth year-over-year in domestic passengers carried as TACA Peru continued to build up its market share after making a two-phased expansion into the domestic space starting in 2010.
Peru's international market also has been growing rapidly, expanding by 15% through the first five months of 2012. Peru's largest carrier and TACA Peru's main rival, Lan Peru, has been expanding its international operation and is now planning another push from its Lima hub to leverage the combined network of new parent LATAM to capitalise on connecting passengers from North America, which should further bolster Peru’s international market.
According to the Chilean Government’s Investment Review publication, the Chilean Foreign Investment Committee under the Ministry of Economy, Development and Tourism has announced a slew of substantial foreign investment projects in the infrastructure sector. Numbered amongst these are projects in the airport business. Chile is often overlooked when investment opportunities are considered in South America but it does have one of the more solid economies, and a successful, pan-national airline that has just completed its merger with Brazil’s TAM.