Chile domestic aviation market grows solidly, for FSCs and LCCs
Chile's aviation market continues to grow at an impressive pace, driven by double digit expansion in the country's domestic passenger market over the past couple of years. Chile has one of the highest trips per capita (TPC) in Latin America and the arrival of LCCs will no doubt continue to lift TPC in Chile.
A decision by Chile's government to lower passenger charges has won accolades from industry stakeholders, and is being held up as an example of a positive and progressive policy development in Latin America.
Although Latin America's economy is taking a sideways trajectory to recovery, for now Chile's passenger growth prospects for 2019 continue to look promising as passenger growth for the country's three largest airlines continues at a solid pace.
- Chile's domestic aviation market has experienced significant growth, with double-digit expansion in the domestic passenger market in recent years.
- The Chilean government's decision to lower passenger charges has been praised as a positive and progressive policy development in Latin America.
- Chile's three largest airlines - LATAM Airlines Group, Sky, and JetSMART - have transformed the domestic aviation market, with low-cost and ultra-low-cost carriers stimulating passenger demand.
- JetSMART, a startup ULCC, has achieved solid passenger growth and a significant market share since its launch two years ago.
- Chile's government has implemented multi-year reductions in passenger-related charges, which are estimated to save consumers approximately USD 420 million by 2022.
- Despite some economic headwinds, including the US-China trade dispute, Chile's passenger growth prospects for 2019 remain promising, with all three major airlines experiencing solid growth in domestic passenger levels.
Summary
- In the past couple of years Chile's domestic aviation market has transformed into three major players - LATAM Airlines Group, Sky and JetSMART.
- Sky and JetSMART operate under a low cost and ultra low cost model, respectively, and it appears that passenger stimulation is occurring in Chile.
- Chile's government has eased some of the burdens associated with air travel by reducing passenger-related charges.
- The economy of Chile looks to be on a reasonably stable footing, but the country is feeling some effects from the US-China trade spat.
Chile's domestic passenger growth suggests some stimulation is occurring
Chile's total passenger levels increased nearly 11% for the 8M ending Aug-2019 to 17.7 million, with domestic growth of 17%, to 10.1 million. International passenger numbers expanded by 3.5%, to 7.7 million.
The start-up ULCC JetSMART marked its two-year anniversary in Chile in Jul-2019 and has steadily built up a solid passenger share since its debut. Its domestic passenger levels increased by 45% year-on-year through the first eight months of 2019, and its domestic passenger share for that period was 14.9%.
Chile's domestic passenger share by airline for the 8M ending Aug-2019
| Airline | Domestic passenger share |
| LATAM Airlines Group | 59.2% |
| Sky Airline | 25% |
| JetSMART | 15% |
Data from CAPA and OAG show that as of mid-Oct-2019 JetSMART served 13 domestic markets and three international destinations: Buenos Aires El Palomar in Argentina, and Lima and Arequipa in Peru.
In Dec-2019 JetSMART plans to add new international flights from Santiago to Cali and Bogotá in Colombia. JetSMART is also adding five new domestic routes in late 2019 - Concepción to Arica, Balmaceda and Punta Arenas; Arica to La Serena; and Santiago to Puerto Natales.
Sky Airline, which transitioned to a low cost model a couple of year ago, remains Chile's second largest airline, having grown its domestic passenger levels by 16.7% year-on-year to 2.5 million through Aug-2019. The airline accounted for a 25% share of the country's domestic passengers.
Based on data from LATAM Airlines group, which is Chile's largest airline, the country has the highest trips per capita in Latin America, growing by 79%, to 1.0, from 2010 to 2017.
Growth in trips per capita in select Latin American countries from 2010 to 2017
JetSMART has always stressed that its strategy remains passenger stimulation rather than taking market share from its Chilean competitors. Chile's domestic passenger levels have grown steadily since JetSMART's market entry.
Before JetSMART's launch in 2017, Chile's airlines transported 10.8 million passengers in 2016. During 2017 domestic passengers increased to 11.6 million, and again to 13.5 million in 2018.
Although LATAM Airlines Group's share fell during that time, for all of 2018 and the first months of 2019 its passenger levels still increased. Sky's share has remained steady, and its passenger levels have also continued to grow steadily.
Chile's domestic passenger level and share by airline from 2016 to 2018
| Year | Passenger levels | Domestic passenger share by airline |
| 2016 | 10.8 million |
LATAM Airlines Group 73.6% Sky 26% |
| 2017 | 11.6 million |
LATAM Airlines Group 67.9% Sky 27% JetSMART 3% |
| 2018 | 13.5 million |
Sky 26% JetSMART 12.2% |
Although the data snapshot suggests that lower fares appear to be stimulating passengers in Chile, it is not yet clear how yields in the domestic market are holding up.
Chile's government wins praise for easing some charges for airline passengers
Chile's passenger growth is also likely driven in part by the country's government decision in late 2018 to initiate a multi-year reduction in passenger-related charges. IATA has estimated that the cuts would generate approximately USD420 million to consumers by 2022.
During an interview with CAPA TV at the recent CAPA Latin America Aviation and LCCs Summit, IATA Regional Vice President for the Americas Peter Cerda explained that the association had had positive discussions with heads of state from Chile, Colombia and Panama and the governments of those countries "have all committed to support the industry to try remove as many barriers as possible".
IATA Regional VP for the Americas Peter Cerda at the CAPA Latin America Aviation and LCC Summit
Mr Cerda highlighted progress made in Chile with the reforms in passenger fees, commending the country's President Sebastián Piñera, noting that he had "committed to reducing taxation and some fees, and he did both of those".
Mr Piñera had also pledged to examine the governance of airport concessions, said Mr Cerda.
Chile expects GDP growth of more than 2% in 2019, before 3% growth in 2020
The economic outlook for Latin America in 2019 is somewhat mixed as the IMF has concluded that the 0.6% forecast for real GDP growth in Latin America and the Caribbean would be the lowest since 2016. But a rebound is expected for 2020, when GDP growth should reach 2.3%.
See related report: Latin American aviation: GOL and Aeromexico uneasy about capacity
Latin America's largest aviation markets - Brazil and Mexico - are facing downward revisions for their economic growth in 2019. Brazil's GDP growth forecast for 2019 has been cut from 2.2% to 1.6%, and Mexico's GDP is projected to grow just 1.1% in 2019, compared with previous projections of 2.2% growth.
Chile is facing some headwinds from the US-China trade spat. The dispute has driven down prices of copper, which is a major driver of Chile's economy.
Still, Reuters recently reported that Chile's government was expecting 2.6% GDP growth in 2019, followed by an increase of 3.3% in 2020, which is a better performance than some of Latin America's larger economies.
Chile's dominant airlines have cultivated a peaceful coexistence
Chile's domestic market has undergone some significant change within the past two years that have resulted in three dominant airlines.
Although LATAM is a full service airline, it has fare families designed to compete with low cost rivals in all of its domestic markets in Latin America, including Chile.
All three of Chile's dominant airlines continue to grow their passenger levels in the country's domestic market and, for now, those operators appear to be coexisting peacefully as overall passenger levels continue to grow.