CAPA Live: LCC Viva Air expands aggressively in Latam


Viva Air has ramped up capacity in Colombia aggressively and is looking forward to regional expansion

The Viva effect helps to drop fares and stimulate the market to double the number of passengers. Airline aggressively ramped up capacity in Colombia, as December and January are peak season.

A lot of the full service carriers have filed for Chapter 11 protection and are now looking to transform their operations to a low cost model. Viva is ahead of the curve.

Governments in Latin America have not realised the importance of aviation in the economic chain.

Talking at the CAPA Live on 9-Dec-2020, Viva Air's CEO Felix Antelo spoke with CAPA's senior advisor John Thomas. Some of the key highlights can be found below.

  • Viva Air has aggressively increased capacity in Colombia and is planning for regional expansion.
  • The "Viva effect" has led to a drop in fares and stimulated the market, doubling the number of passengers.
  • Full-service carriers in Latin America are transforming their operations to low-cost models, with Viva Air already ahead of the curve.
  • Governments in Latin America have not fully recognized the importance of aviation in the economic chain.
  • Viva Air has successfully shifted passengers from bus travel to air, offering a safer means of transportation.
  • Latin American airlines have not received significant government support compared to their counterparts in other regions, putting them at a competitive disadvantage.

Viva Air's CEO Felix Antelo at CAPA Live on 9-Dec-2020 - verbatim text

The Viva effect in every market helps drop fares between 30% and 50% and stimulates the market

"We were here almost 180 days with our fleet in the ground. What kept us alive and kicking and trying to make it to the next day was the belief in the project that we have here at Viva. We've been in Colombia for more than eight years now, Peru for more than three years, we were the first low cost ULCC, both here in Colombia and in Peru. We do think that we are an alternative for the market, which provides for Colombians and Peruvians for affordable travel, air travel with a very good service."

"When I talk about service, I talk about OTP, from quality, I talk about the newest fleet in both markets. I talk about a very extensive and good network. I talk about a good service on board, I talk about technology and how we interact with our customers. I talk about the Viva effect. What is the Viva effect - every market that we open where Viva enters we drop down the fares between 30[%] and 50%, and more than stimulate the market and more than double the passengers.

"What kept me alive was trying to get through this more than eight, 900 direct people direct employees are with Viva. More than 2,500 indirect people that depend on Viva to live and to see their dreams realized. So all of the above or the before were why we kept on going, and we survived this more than six months of lockdown."

"We have a very good trend, I have to say when you look what we've done in this September, October, and November, and what we're seeing for December and the foreseeable future. We are very optimistic that air traffic, air travel is coming back and that industry is super resilient, the people will come back to the place. We are seeing this already with tourism and VFR, and with visit friends and relatives. And company travel and corporate travel I think that will take longer, but that will come back too I'm confident on that."

While full service carriers have filed for Chapter 11, and others are transforming their models low cost, so we are ahead of the game

"Legacy carriers and some others, GOL and Azul in Brazil, some carriers in Argentina are all transforming their models for the short haul, for the domestic and regional short-haul. They are transforming the model into an LCC model, which obviously they have some limitations up to where they can go.

"The LCC and the ULCC model is a winner here. I'm absolutely convinced about that. And again, going back I'm a history fan in general to understand, and to learn from the past to apply for the future. But when you see what happened after the crisis that we mentioned before 9/11, SARS, H1N1, after every single one of those crises, the LCC and the UCC models got out of those stronger."

"And that's what's happening now. You have to see what's happening in Colombia. In Mexico, let's take other countries, in Mexico the ULCCs there are getting out way stronger than Aeroméxico in this case. What's happening here in Colombia with Viva. So absolutely I'm confident in the model and I think we'll emerge from this stronger."

Viva restarted flying in Peru in July but people were not ready to fly, but recently we are starting to see a good pick up. Colombia started in September and we've ramped up capacity really quickly

"Starting with Peru, we restarted on 15-Jul-2020. Peru was more of a typical restart, when you compare to other parts of the world. What I mean by this is it was a hard restart, people were not ready to fly again. Mostly essential flyers. Two weeks after the restart most of the country went in a new lockdown, not air lockdown, but some regions went in full quarantine. So we had to stop flying to some of the destination we had launched only two weeks, so that didn't help."

"Peru up until two or three weeks ago was still as a country was in a very full lockdown mode, even though that the former lockdown is not there. The people up until again a couple of weeks ago tend to stay up very much. Peru suffered a lot from COVID, had lot of deaths and a very bad health situation. Peru was more of if you want of a typical restart in the sense that load factors around 60%, lots of no shows, very little operation operating between 20[%] and 30% of what we used to operate pre-pandemic. And now I would say going the latter part of November, going into December and going into January, we were starting to see a very good pickup load factor has gone up to 80%."

"No shows have declined. People are starting to go out and starting to spend and starting to travel. So we are, I would say, let's say five months from the research from July starting to see the light in Peru at the end of the tunnel, which is definitely is very good news. Colombia was different in a good way. We restarted on 01-Sep. Just to give you an example or order of magnitude, in Colombia, we used to fly around 450,000 seats in February the last month that we operated fully pre-pandemic. We restarted in September with 100,000 seats. So that was roughly 25%, but we ramped up from there very aggressively where we will be flying more than 400,000 seats in December."

"So we went from 100 to 200 in October to 300 in November to 400 in December now. December is peak season with January, so that helps, definitely it helps. But anyway, as you might see a very rapid and quick ramp up, we had very decent and very healthy load factors from the beginning. We operated at plus 70% in the first month in September. October with flow load factor of more than 85%, flow load factor in October, we kept that in November. And we're seeing very, very healthy trends for December and January. So again, very, very quick recovery, one of the fastest in the world together with Mexico and Brazil. Again, people starting to fly getting on the planes, protocols being enforced."

We were the first airline in Peru and Colombia to be certified for our biosafety protocols, which helped give people confidence.

"It's amazing how people can change their behaviour when you go through an event of this magnitude, but it's quite hassle free to fly. You have to always use your face mask. You keep your distancing in the airports. But people, I think we did a good job in terms of gaining people trust and confidence to get back on a plane. We were Viva the first airline, both in Colombia and Peru to be certified by authorities with our biosafety protocols. Again first in both countries, that also helps a lot, I think, to give people trust and confidence. We operate the most modern fleet in both countries, which also helps I think from a biosafety perspective. We were very aggressive, as I was telling you before in the itineraries that we put in the market, we have a lot of flexibility."

"We got an agreement with our pilots in coming through in terms of flexibility, where we could activate them if we saw that demand was coming back faster than expected. Which happened, and which gave us the opportunity to activate and be more aggressive on the network and on the restart. So that's where we are now, again, entering into a big season, I would say in a way better place than what we expected some months ago."

Viva Air has successfully shifted people from bus travel to air, but there is a big market out there. Travelling by air is by far the safest means of travel

"Our main target is bringing people from the bus to the plane. Just to give you an example in Peru in a normal year 100 million passengers travel by bus in Peru. Our market is around 15 million. So it's six/seven times. It starting to change as ULCC's gain presence in these markets. But definitely targeting passengers from buses coming over to travel by air is our main objective there, and we try to do it as good as possible. Definitely what happened post pandemic was, and I say this very confidently, it was never safer in my opinion to travel by air right now."

"And when I say this it's by far the safest means of travel or transportation compared to a bus to a car to a train because we know all the technology that goes into the HEPA filters, everybody wearing a mask, boarding and deboarding of the plane by groups. All the protocols that are in place from use of the bathrooms to food service. So I think it's never been safer to fly. And I do think that no other means of transportation come even close to the safety and the biosafety that we can provide as air industry. I cannot contribute this because we still don't have the surveys to confirm it scientifically, that we are bringing more people from the bus than before, but I can assure you that that is the case definitely."

"Because as I was telling you before, even though in buses at least here in Colombia and Peru you have some limitations on to the capacity that each bus can transport. The difference in the technology of both means of transportation is so big, that I think air traffic will have a bigger edge over the next year over buses. Because this won't end here, COVID will end and we will get through this today and I think over the next days and weeks we'll have confirmation that vaccines will be distributed all across the world, luckily, and people will start getting vaccinated. And COVID luckily will be a thing of the past, but to many people this will stick around."

"More people will use face masks. More people will be more I think will put more control or more care into how they travel. And I think the people that used to travel by bus will now say, 'Look, I won't travel by bus. I'll fly which I'm paying all the same as you were saying, in some cases in a cheaper.' In a way, better and safer environment than in a bus. So I do think it's a trend of the future, definitely."

The Peruvian and Colombian markets are two of the most competitive in the region, which really benefits customers

"I think both Peru and Colombia are two of the most competitive markets in the region, and I think it's fair to say in the world. Peru has had a lot of events over the last couple of years with the entrance of Viva almost four years ago. Their dismissal of two local airlines LLC or LLC Peru and Peruvian. The entrance of a new low cost a couple of years ago or one year and a half ago and SKY. The announcement of a new LCC coming in which is JetSMART as you know. With a leader in the market, which is LATAM an LLC company which has been in the market for many years now. All of those have built a very, very competitive market in Peru, which obviously benefits passengers and benefits consumers and clients."

"And I think what you get there is the fastest growing domestic market in the region in South America for the last 70, 80 years. Again that benefited the customer in a quite significant way. There are a lot of bottlenecks there, and there are issues to be solved. Mainly you can call it infrastructure, starting with Lima and going to the rest of the airports. Cusco, the northern airports, some of the airports in the jungle, Iquitos, lots of infrastructure challenges I would say. But all in all I think Peru is a very competitive market which I think it's worth being in. That's why we've been the first LCC that tap into that market. And we'll see how it evolves from here, but definitely I foresee some years of very strong competition in Peru."

There has not been a lot of government support in Latin America, there is not so much understanding of the importance of aviation. We are competing against US carriers that have received aid

"Latin America, from Mexico, South Latin America has been by far the least attended continent, in terms of air transport aid or assistance. You know very well what happened in the US with the CARES Act and the support for the airlines. We have plenty of examples from Asia to Australia to Europe what happened in the different countries, from individual bailouts to direct assistance to government financing. I would say most of the world understood the role of aviation, of transportation, and of aviation and the need of assistance for the airlines because this wasn't a crisis of mismanagement or of doing the wrong things. But it was a crisis of a pandemic where governments imposed in many cases, the impediment for companies to operate. Even companies that wanted to operate you couldn't operate."

"So if you are grounded or you're not allowed to lose your business, that should come with some relief or assistance. Again, most of the governments around the world I think understood that. That unluckily and unfortunately wasn't the case in Latin America. And not because we didn't work for it, not because we didn't ask for it, but there are fiscal and economic limitations we have to accept that. We are a poorer continent than the US or Europe or Australia, and you have to acknowledge that and we acknowledge that. But also I think because in a way still we haven't and governments in the region, haven't realised, again, the importance of aviation in the economic chain of value in the different countries where we operate. Having said that I think Colombia, probably was and is the country in the region, again in the whole Latin America, which took things more seriously and moved faster even though it wasn't enough."

"I have to say this it's not enough what they've done. It was more than most of the countries. Most of the countries to be honest didn't do anything. In Colombia we had for example some measures that were taken, reducing VAT on tickets and on fuel, aviation fuel from 19%, the normal level, to 5%, it was a good relief. Exceptions on charging, for example, fees to park your aircraft because you couldn't fly. Why I'm going to charge you if you did not fly. Some deferrals on some taxes, again, I think help with a refund policy. For example, in Colombia, again, having the possibility to refund in services and not in cash. Obviously, many people were asking for refunds, 'You couldn't fly, okay, you will be able to with us using the money that you spend in the future'."

"So again, when you compare Colombia to the rest of the continent, I think Colombia did way more but not enough. There was not one single financial assistance to any company, any airline in the continent. Not that I am aware of, there was a lot of talk about Peru helping but that didn't happen yet. There was an announcement from Colombian government lending money to Avianca that didn't materialise because there was an introduction by a judge here in Colombia. So being practical, no direct assistance, or financial assistance to airlines in the region. It's not fair if you compare, for example, with flights from Colombia to the US and Colombian companies are competing with American companies, which have been helped, which have had aid, some financial which we haven't. So that leaves you in a non-competitive situation, but that's what had happened and that's my view."

We look forward to expanding into a third country and operating regional flights from three to five hours.

"In 2021, I think that will be likely be postponed or delayed by a year or so being realistic. Where do I see the group five years from now? I think we have a presence here in a third country domestic wise. And with a much stronger network in terms of international side. The ULCC model has been very successful in many domestic markets, Colombia, Peru, Chile, Argentina starting. But it hasn't got a lot of traction in regional markets. And I think that the next phase is regional flying from three to five hours, or from two to five hours where you can implement the model, be as competitive or even more... Have a better cost advantage versus your legacy competitors."

"And grow the market in a substantial way in those markets, again, regional short-haul markets from two to five hours, where the NEOs obviously deliver an excellent performance there. 737 MAX too, but we know now that they will come back to operation. And that I think is the next phase for ULCC's in the region obviously we are taking the lead there."

"The 321XLR opens up a new world for many airlines, it depends where you're based. For us being based in Colombia, in the middle of the continent, you could argue that you don't necessarily need a 321. You could deliver this with a 320neo, but definitely I think it reinforces the arguments [for] the 321. So we'll see where we go from here, but that's what I foresee for the next five years."

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