Latin America aviation: FSCs, LCCs and ULCCs stimulating demand


Latin America is one of the most promising aviation markets in the world, with ripe opportunities for passenger stimulation.

Airlines operating across all business models in the region are contemplating what the right formula is for capitalising on passenger growth, and as a result, low cost operators are growing in the region. During 2017, a raft of new airlines made their debut and experienced reasonably solid market reception, and low cost airlines are now formidable operators in Latin America’s three largest air travel markets – Brazil, Mexico and Colombia.

One prevalent trend in Latin America is the hybridisation of some low cost airlines as they work to move upmarket and capture more lucrative business passengers.

For example, Brazil’s first LCC GOL captured a 35% share among Brazil’s business passengers in 2Q2017. Some ULCCs are breaking traditional moulds as well. Volaris, which has one of the lowest unit costs in the region, is forging a codeshare with Frontier – a first for ULCCs operating in the Americas.

As airlines operating under various business models adapt to changing conditions, costs will remain the distinguishing factor for the ULCC model in Latin America. It remains to be seen in Latin America and worldwide whether the fare segmentation adopted by full service airlines and the hybridisation of low cost airlines will result in sustained success, but ULCCs have no intention of relinquishing their cost advantage.


  • Low cost operators have captured significant share in Latin America’s largest markets.
  • The most recent new entrants appear to be stimulating traffic in the region.
  • As some LCCs in Latin America mature, there’s a certain level of hybridisation taking effect to cater to a wider swathe of passengers.

CAPA's Americas Aviation Summit in Houston, 16/17 April, will look at how Latin American markets are faring, along with many other top level topics

Agenda item: Serving Latin American markets

Latin America has long been the backyard for US airlines of all sizes. As a high potential growth market, its outlook is quite different from the Asian profile. Already US airlines have secured significant equity holdings and partnerships, in attempting to subdue some of the more difficult elements of competition.This has been possible as several key Latin American countries, such as Mexico, Brazil, Chile and now Argentina have adopted relatively liberal aviation policies.

Ownership and control and foreign equity ownership have been significantly relaxed in several cases. Only a small number of states including those of central America have resisted this trend. As the main Latin economies emerge from the difficult times they have experienced in this decade, there is the potential for US airlines to establish even stronger ties

  • How do limits on open skies and infrastructure constraints inhibit growth?
  • Are Latin American governments likely to pursue liberal market regimes, including market access and foreign ownership?
  • Are more cross border equity investments likely as partnerships evolve?
  • Are there opportunities for multilateral liberalisation that would benefit US airlines?
  • Which markets are underserved and have the most potential?

Moderator: IATA, Regional Vice President, The Americas, Peter Cerdá

  • ICF Aviation, Principal, Carlos Ozores

  • Interjet, Chief Commercial Officer, Julio Gamero

  • Volaris, Chief Executive Officer, Enrique Beltranena Mejicano

Low cost airlines are formidable competitors in Latin America's largest markets

Mexico and Brazil were the forerunners for low cost airline growth in Latin America.

GOL debuted in 2004, and now has a commanding 34% share among Brazil’s domestic passengers. Azul inaugurated service in 2008 and is now Brazil’s third largest airline, with a 23% share of the country’s domestic passengers in 2017. Azul acquired and merged with the smaller regional operator TRIP during 2012-2013, which has helped Azul accelerate its scale in the country.  

Domestic passenger share for Brazil's airlines in 2017

GOL 34%
LATAM Airlines Brazil 31%
Azul 23%
Avianca Brazil 12%



During the mid-2000s there was an explosion in low cost airline development in Mexico when Volaris, VivaAerobus and Interjet all took to the skies in that period. Combined, those three airlines represented 66% of Mexico’s domestic passenger share in 2017.

Domestic passenger share for Mexico's airlines in 2017

Grupo Aeromexico 29%
Volaris 28%
Interjet 21%
VivaAerobus 17%
Magnicharters 2%

The low cost model took hold in Colombia in 2012 with the debut of VivaColombia, which captured 12% of the country’s domestic market in 2017.

Domestic passenger share for Colombia's airlines in 2017

Avianca 58%
LATAM Airlines Colombia 19%
VivaColombia 12%
Easyfly 4%
Satena 4%
Copa Colombia (Wingo) 1%

Latin America's latest low cost entrants work to exploit low trips per capita

There was somewhat of a lull in low cost proliferation after VivaColombia’s debut. But there was a jump in activity in late 2016 and 2017.

The Mexican ULCC Volaris launched a new subsidiary in Costa Rica, Copa opted to launch a new lower cost brand Wingo in the Colombian market, the Viva franchise launched operations in Peru, and Indigo-backed JetSMART ushered in the ULCC model in Chile.

It is too early to make definitive conclusions about long-lasting effects of the latest round of LCC/ULCC start-ups in Latin America, but JetSMART has always maintained that its goal was passenger stimulation rather than stealing share. Chile has one of the higher trips per capita in Latin America, at 1.1, but its penetration remains far below those of the UK and the US.

2016 trips per capita in selected Latin American countries

Chile’s total passenger levels increased 11% year-on-year in 2017, to 22 million, and domestic passenger growth reached 7%, to 11.6 million. The country’s second largest airline, Sky, which has transitioned to a low cost model, logged 13.8% growth in domestic passengers to 3.1 million. Between its debut in Jul-2017 and YE2017 JetSMART transported 333,914 passengers, achieving a 2.9% domestic share.

Although Chile’s largest operator, LATAM Airlines Chile, recently stated that it had noted a substantial increase in Chile’s domestic capacity: “We have seen a relatively good response from the market”.

Peru’s domestic airline passengers grew by 8.5% year-on-year in 2017, to 11.7 million, and Viva Air Peru, which debuted in May-2017, transported 305,948 domestic passengers in 2017 and achieved a 2.6% share.

Volaris aims to capitalise on fifth and sixth freedoms

The Mexican ULCC Volaris made a strategic move in late 2016 with the debut of Volaris Costa Rica. Its intra-Central American routes include service from San Jose to Mexico City, Guatemala, Guadalajara, Cancún, Managua and San Salvador.

Central America has only an 8% LCC penetration rate, approximately, and Volaris secured a key win in late 2017 after US regulators awarded the company rights to serve the US.

Perhaps more importantly, Volaris Costa Rica now has the ability to use fifth and sixth freedom rights to connect Costa Rica to the US. Volaris Costa Rica has launched San Jose-San Salvador-Los Angeles service and San Juan-Guatemala-Los Angeles. New flights planned for Apr-2018 and May-2018 include San Jose-San Salvador-JFK and San Jose-San Salvador-Washington Dulles.

Armed with operating rights to the US, Volaris Costa Rica now plans to operate up to 22 aircraft within a four year period.

All Latin American airlines are adopting non-traditional strategies

Volaris has also made a giant leap through a planned codeshare with fellow US ULCC Frontier. Both airlines have ties to Indigo Partners, which owns Frontier and is a majority owner in Volaris.

Volaris expects to add 20 US destinations through the codeshare, which will represent 1% to 2% of its total annual traffic, and 2% to 3% of its US traffic.

“One important thing with this agreement is that it also includes the possibility not only to sell connecting flights but also have Frontier act as a point of sale for Volaris flights in the US”, Volaris executives recently explained. “So it has those two components, more connecting traffic and also a point of sale through the Frontier distribution channels for our flights.”

See related report: Volaris-Frontier codeshare is a logical evolution of the ULCC airlines model in the Americas

It is an innovative step, and one that has not been replicated by the US’ largest ULCC Spirit Airlines. Spirit has not shown any real interest in pursuing codeshares, even as long haul low cost airlines continue to add service to some of Spirit’s more medium-sized markets such as Cleveland, where codeshare revenue could be beneficial.

All of Latin America’s airlines – LCCs, ULCCs and FSCs – have remained focused on generating ancillary revenue, and as the large LCCs Azul and GOL continue to build corporate share aggressively, and the region’s largest operator LATAM Airlines Group deploys fare segmentation to combat the growing low cost threat, there’s a certain blurring of the lines between LCCs and FSCs.

Factoring in Volaris’ non-traditional codeshare agreement with Frontier, and clearly airlines adopting all business models are stepping outside traditional boundaries.

As a result, costs will remain the distinguishing factor between ULCCs, hybrids and FSCs. Volaris is one of the lowest cost operators in the world, recording a USD4.9 cent ex-fuel unit cost for 4Q2017. It is the best performance in the Americas, and worldwide second only to Wizz Air, whose unit costs excluding fuel in the last quarter of 2017 was USD3.2 cents.

Indigo Partners holds stakes in both Volaris and Wizz. (All calculations are from Volaris). Of course, all airlines worldwide are working to slash costs, but those airlines aiming to offer products ranging from price sensitive travellers to corporate customers will never touch the cost base of ULCCs.

Low cost proliferation is just getting started in Latin America

There are many changes occurring in Latin America’s aviation market as all of its airlines work to adapt to an evolving operating environment.

As airlines attempt to adapt to those changing market conditions, low cost airlines will continue their efforts to spread the model throughout the region.

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