Argentina's airlines position themselves for a robust market rebound
Before the COVID-19 pandemic Argentina's aviation sector was in the midst of a transition, as start-up low cost carriers were working to establish themselves in a market that was beginning to liberalise.
Now with two ultra-low cost airlines and a national carrier in Argentina, it appears as if there is a bit of rationality in the country's market in a post-pandemic environment as the recovery in the country's aviation sector continues at a steady pace. The country's operators continue to maintain bullish outlooks as they grow and rebuild their networks.
Although Argentina remained closed off longer than other countries in Latin America during the COVID-19 pandemic, the consolidation ultimately created opportunities for Argentina's ultra-low cost airlines. Those airlines have also largely been able to continue on their growth trajectories.
It could be argued that Argentina could have an aviation market evolution similar to Mexico's - a country whose largest airlines are one full service carrier and two ULCCs.
- Argentina's aviation sector experienced a transition before the COVID-19 pandemic, with the entry of low-cost carriers and liberalization of the market.
- Despite the pandemic, Argentina's ultra-low-cost carriers have been able to continue their growth trajectories and capitalize on the recovery in the market.
- Flybondi and JetSMART Argentina are planning significant growth in 2023, with Flybondi expecting a turnover of USD 500 million.
- Argentina's flag carrier, Aerolineas Argentinas, has also reported a healthy recovery and an increase in passenger numbers compared to 2020.
- The international demand for Argentina is expected to gain momentum in 2023, with more airlines adding intra-regional and long-haul flights.
- Argentina's aviation market evolution could follow a similar trajectory to Mexico, with a mix of full-service and ultra-low-cost carriers coexisting.
Summary
- New ultra-low cost start-up airlines took advantage of liberalisation in Argentina before the COVID-19 pandemic.
- Just before, and during, the crisis some consolidation occurred in Argentina's aviation market.
- The country's low cost carriers are plotting solid growth.
- Argentina's flag carrier, Aerolineas Argentinas, is citing a solid recovery in its operations.
- The country's recovery in international demand could gain momentum in 2023.
- Argentina's market evolution could mirror Mexico's trajectory.
Argentina opened up to low cost airlines just before the COVID-19 pandemic
The stage was set for low cost operators to enter the Argentinian market in 2015, when the country's president at the time, Mauricio Macri, allowed airlines to expand domestically, and allowed international operators to serve Argentina's secondary markets. His administration also removed the long-standing airfare floor in the Argentinian market in 2018.
The ultra-low cost airline Flybondi made its debut in Jul-2018, followed by Norwegian Air Argentina in Oct-2018.
JetSMART Argentina entered the market in Apr-2019.
There was some concern when Alberto Fernández became Argentina's president in 2019 that the country's government would revert back to protectionist practices. Mr Fernandez's vice president is the country's former president, Cristina Fernández de Kirchner, whose government did not embrace liberalisation in the aviation sector.
In late 2019 Norwegian Air Argentina decided to exit the market and sold its operation to JetSMART Argentina.
Some consolidation occurred before, and during, the COVID crisis
Norwegian exited the market just before the COVID-19 pandemic, and during the crisis LATAM Airlines Argentina, which at one time had been the country's second largest domestic airline, also ceased operations.
Although Argentina remained closed off longer than other countries in Latin America during the COVID-19 pandemic, the consolidation ultimately created opportunities for Argentina's ultra-low cost airlines. Those airlines have also largely been able to continue on their growth trajectories.
Argentina's ULCCs work to capitalise on the country's recovery
Data from Argentina's ANAC show that the 13 million domestic passengers transported by the country's airlines in 2022 were approximately 13% below 2019 levels in numbers.
Flybondi's passenger share in Dec-2022 jumped by 6ppts year-on-year, whereas Aerolineas Argentinas' share fell by the same amount.
JetSMART Argentina maintained its 15% share.
Flybondi recently took delivery of its 12th Boeing 737-800 and is searching for five additional aircraft. The company has forecast a turnover of USD500 million for 2023.
The airline is growing its capacity at a fast rate during the year, both compared with 2022 and 2019.
Flybondi: weekly system ASKs, from 2019 to Mar-2023
Argentina's other ultra-low cost operator, JetSMART Argentina, is also plotting significant growth in 2023.
JetSMART Argentina: weekly system ASKs, from 2019 to Mar-2023
Those airlines have likely concluded that they can leverage opportunities both to capitalise on the continuing recovery in Argentina, and also to stimulate traffic as the low cost model gains more traction.
Flybondi has estimated that 20% of its customers are travelling by air for the first time. The airline transported broadly 2.3 million passengers (domestic and international) in 2022 - compared with 1.5 million in 2019.
Aerolineas Argentinas also remains bullish on its recovery
Argentina's flag carrier Aerolineas Argentinas has also cited a healthy recovery in Argentina's market.
The airline recently said that it had transported 11% more passengers in Jan-2023 compared with the same time period in 2020.
The 11.4 million passengers the airline transported in 2022 remains below the 13.3 million customers Aerolineas Argentinas transported in 2019. But the airline - Argentina's sole intercontinental airline - had a larger international footprint before the pandemic.
The eight million international passengers that travelled to Argentina in 2022 was a 44% drop compared to the 14.3 million passengers transported in 2019, data from ANAC show.
Aerolineas Argentinas transported 2 million passengers in 2022, compared with 3.3 million in 2019.
Aerolineas Argentinas' capacity trajectory is a bit slower, but Flybondi and JetSMART Argentina are moving from a much smaller base.
Aerolineas Argentinas: weekly system ASKs, from 2019 to Mar-2023
Aerolineas Argentinas remains Argentina's largest airline measured by departing frequencies, by a large margin, as can be seen below.
Argentina: system departing frequencies by airline, as of late Feb-2023
Argentina's domestic ASKs will grow beyond pre-pandemic levels in 1H2023, but opportunities for airline operators seem to justify that growth.
During 2H2022 both Flybondi and Aerolineas Argentinas concluded that domestic demand was exceeding supply.
Argentina's domestic ASKs, from 2019 to late Jul-2023*(projected for coming six months)
See related CAPA report: Argentina's airlines are bullish as demand remains robust
Argentina's international rebound could gain steam in 2023
Indeed, in Jan-2023 Aerolineas Argentinas highlighted that during Jan-2023 approximately 2.5 million passengers were transported to, from, and within Argentina - which exceeded pre-pandemic figures.
For now, it seems as if the country's airlines are behaving in a rational manner.
There has also been a raft of announcements regarding long haul service to Argentina; but the country's international ASKs through late Jul-2023 remain below pre-pandemic levels.
Argentina: international ASKs from 2019 to late Jul-2023*(projected for coming six months)
That situation is likely to change throughout the course of the year as more airlines add more intra-regional flights in South America, as well as long haul services.
For example, Aerolineas Argentinas' fellow SkyTeam member Delta Air Lines is launching flights from New York JFK to Buenos Aires in 4Q2023, and Argentina's flag carrier is upping its frequencies from Buenos Aires to Madrid and Rome in Jul-2023.
Other airlines are also working to resume international service, or are evaluating the launch of international service, to Argentina.
Could Argentina chart a market evolution similar to Mexico?
There is little doubt that Argentina holds much promise for the ultra-low cost operators that have put down roots in the country.
In some ways, Argentina's market trajectory could mirror the evolution of Mexico's aviation market.
Mexico's three largest airlines are the full service operator Aeromexico and the ULCCs Volaris and Viva Aerobus; Volaris is Mexico's largest domestic airline measured by passengers carried.
It is yet to develop whether that will be the case. But for now, Argentina's full service airline and ULCC start-ups appear to have a relatively peaceful co-existence.