Latin America’s airline CEOs discuss the market, liberalisation, challenges & opportunities. Part 1


Latin America airline CEOs: On market conditions, liberalisation, challenges and opportunities. This is Part 1 of a two part series. For Part 2, please visit centreforaviation.com/IATA6

The outlook for Latin America’s aviation sector is starting to brighten after a difficult couple of years. The long-term prospects for growth remain bright as economies recover, the middle class expands and new LCCs are launched. Following the recent changes in Argentina most of the region’s markets have liberalized and are now open.

However, infrastructure challenges and regulatory issues, including high taxes on international air travel, still need to be overcome.

Latin America is a market dominated by four main full service airline groups – Aeromexico, Avianca, Copa and LATAM. These four players account for nearly 40% of total capacity in Latin America (includes capacity flown by foreign airlines) and nearly 50% of total capacity flown by Latin American carriers.

A small group of LCCs has had a sizeable presence over the last decade in the region’s two main domestic markets, Brazil and Mexico. LCCs are now gradually starting to make inroads in other markets across the diverse region. Three LCCs have launched over the last year (in Colombia, Costa Rica and Peru), bringing the total number of LCCs in Latin America above 10 for the first time. More LCCs are planning to launch over the next year, including in Argentina, Chile and Uruguay.

Q&A with Enrique Cueto, CEO of LATAM Airlines Group

“we are implementing a new travel model, through which we are striving to reduce promotional fares for domestic flights by up to 40%”

LATAM Airlines Group was formed through the merger of LAN Airlines and TAM Airlines which was officially completed in Jun-2012. The merged airline group operates an extensive network of passenger and cargo services internationally and throughout Latin America. LATAM Airlines unveiled its a new logo in Aug-2015, and plans to work on a new corporate brand over a three-year period. A phased roll-out of the LATAM identity commenced in 2016, with the launch of LATAM divisions – LATAM Cargo and LATAM Airlines. LATAM Airlines was introduced as its new air passenger brand in May-2016, representing the passenger service operations that were previously under the LAN and TAM brands. The combined airline group is on the Santiago, New York and Sao Paulo Stock Exchanges. The Cueto Group owns a majority stake in the airline group with approximately 31.5%. LATAM Airlines is a member of the oneworld alliance. As of the end of May-2017 the group’s fleet consisted of 305 aircraft and 85 orders, according to the CAPA Fleet Database.

The LATAM Airlines Group portfolio of airlines include:

Note: The group also has a minority shareholding (25%) in Florida West International Airways, a cargo carrier majority owned by Atlas Air Holdings. Florida West operates freight services for its primary customer, LATAM Cargo.

Source: CAPA profile pages

How are current market conditions in Latin America and what is your outlook for the rest of this year?


Enrique Cueto: Latin America continues to face a challenging scenario, with weak economic growth, depreciated currencies and high inflation. Brazil in particular continues to experience instability and is now facing further political challenges, after two years of deep recession. In this context, LATAM has focused on right sizing the Company to face a weaker demand environment through cost reduction and a restructuring of fleet commitments. We have proved resilient, as borne out by a full year profit of USD69 million in our 2016 financial results.

Although we are cautious regarding the demand environment in Latin America for this year, we remain focused on the strategic initiatives that will define the future of our company. This year, the most important is the implementation of our new travel model in our six domestic markets, aimed at increasing our competitiveness and stimulating the growth of air travel in the region, which we anticipate to increase by 50% by 2020.

How has liberalization in Argentina impacted your business plan and strategy? How do you plan to take advantage of opportunities in Argentina? 

EC: Argentina is an important and strategic market for the group. For this reason, we continue to strengthen our network both within the country and towards regional and international destinations, with an emphasis on connecting with our hubs. By the end of 2017, we will connect 10 airports in Argentina with international destinations such as Lima, Peru and Santiago, Chile. At the same time, we have added a new long-haul aircraft to the country's fleet, which has enabled us to add new frequencies to Miami, a popular destination for Argentinians.


Argentina, as well as the other countries in the region, represents a great opportunity for growth. Despite specific issues in each country that we must work through with the authorities, we are convinced of the need and the potential for the development of the air travel industry in South America.  

What countries in Latin America do you think are still behind in terms of liberalization, infrastructure and charges or taxes? How important is it for governments throughout this region to liberalize, change policies and invest in infrastructure?

EC: Latin America has great potential for growth, with an annual travel rate per capita of less than 1%. This makes it an attractive region for the industry to develop and airlines have seen real opportunities to increase air traffic. 

IATA forecasts that passenger numbers in Latin America will increase to 658 million per year by 2035, doubling current figures. LATAM alone projects a 50% increase in domestic passenger traffic in the markets where we operate in the region by 2020.

Connectivity is key for the development of countries, by promoting tourism, strengthening relations between citizens as well as facilitating economic activity. However, Latin America is at a disadvantage. Infrastructure constraints, taxes on airfares as well as high airport duties hinder growth.

This is one of the most expensive regions in the world in terms of passenger and airline charges. In some cases, taxes and boarding fees represent more than 40% of passengers' final ticket price.

Regulation is also complex. Latin America has a population of 580 million with 45 different regulations, whereas markets with similar or greater populations such as the United States (317 million inhabitants) and Europe (500 million inhabitants) for instance, each have a single regulation for passenger rights.

Additionally, there are infrastructure issues, where there is still a long way to go. We need to expand and modernize our principal airports, so that they can meet the needs of today's passenger and have sufficient capacity for the projected increase in traffic.

There is great potential and we are confident that by working together with the respective authorities in the region, it will benefit growth.

What are LATAM's plans for capacity and fleet growth plans for this year and next year? What markets/routes are your priorities for growth – both regionally within Latin America and outside?

EC: This year and continuing into 2018, we will maintain a flexible approach to our fleet plan, which has been reduced to historically low levels in line with market conditions. We reduced our order book – which would have resulted in a total fleet of 470 aircraft by the end of 2018 – to one where we currently have 329 aircraft in operation. With this, we have achieved USD2.2 billion reduction in fleet assets for the period 2016-2018, compared with our plan in March 2016. We expect to end 2017 with 311 aircraft, compared with the 329 aircraft that we had at the end of last year.

As for our network, while the company has focused on reducing capacity in Brazil, we continue to strengthen connectivity in the region with the introduction of new routes.

In September, we will begin a new non-stop service between Lima and Tucumán, followed in October by the introduction of direct flights between Santiago and three cities in Argentina – San Juan, Neuquén and Tucumán – as well as a non-stop route between Santiago and Melbourne, which will become the longest flight in LATAM's history.

The new routes announced for 2017 are: 


CAPA: How is LATAM responding to the establishment/launch of new LCCs in several of its home markets (including Argentina, Chile, Colombia and Peru)?

EC: The expansion of the low cost model in the region has generated greater dynamism and competition. Regional airlines are incorporating low cost practices in their business models, while new low cost airlines are arriving in search of growth potential.

All of this is positive for the development of air travel in South America.

At LATAM we are implementing a new travel model, through which we are striving to reduce promotional fares for domestic flights by up to 40% and as a result, encourage air traffic growth. Our new travel model, which will apply to 77% of LATAM's total passengers, is being implemented gradually this year in the six markets where we have domestic services.  Although LATAM will not become an LCC, we will be competitive with the new LCCs entering the region, with a model that enables the unbundling of services while retaining valuable characteristics such as our recognized frequent flyer program, premium cabins on long haul routes and free on-board entertainment. 

With our new travel model for domestic flights, passengers can choose between four fare options – depending on their journey type and what they want to pay for – complemented by a clearer sales process and access to improved technology.

Q&A with Hernan Rincon, CEO of Avianca Holdings

“For Avianca, maintaining a competitive position in all markets is one of the most important challenges” 

Avianca Holdings is a Latin American airline holding company headquartered in Bogotá, Colombia. Latin American conglomerate, the Synergy Group, is the largest single shareholder, with the second largest being the Kriete family (former owners of Grupo TACA). Avianca Holdings SA (formerly AviancaTaca AirHoldings Inc) was formed in 2010 as a result of a merger between Avianca and TACA. The group now hold stakes in a number of airlines previously part of Avianca SA and Grupo TACAAvianca Holdings is dual-listed on the Bolsa Colombia (PFAVH) and NYSE (AVH). Avianca joined the Star Alliance in Jun-2012. Avianca Holdings SA revealed its new unified ‘Avianca’ brand image for TACA, Aerogal and Tampa Cargo in May-2013. As of the end of May-2017, the group’s fleet consisted of 173 aircraft with 142 aircraft on order, according to the CAPA Fleet Database.

Avianca Holdings SA portfolio of airlines includes:

Note: OceanAir Linhas Aereas SA (Avianca Brazil) is owned by Avianca Holding’s largest shareholder, the Synergy Group, but is not part of Avianca Holdings SA. Avian Líneas Aéreas (Avianca Argentina, due to commence in 2017) is also wholly owned by the Synergy Group but is not part of Avianca Holdings.

Source: CAPA profile pages

CAPA: What are the current market conditions in Latin America and what is the outlook for the rest of the year?

Hernan Rincon
: After a prolonged economic deceleration in the region during the past years, the Latin American market is showing symptoms of recovery. Despite the differences between Latin American economies and their various growth rates, the recovery of prices of raw materials and an improvement in political stability during 2017 have allowed the markets to expand and consumption to increase. 

In this order of ideas, this year has registered conclusive and promising numbers both for domestic and international air traffic. According to numbers from the Air Transportation Association for Latin America and the Caribbean (ALTA), the first three months of the year the number of transported passenger increased by 8.6%*, traffic measured in RPKs increased by 9.4%* and capacity measured in ASKs by 6.7%, compared to the same period in 2016.

Likewise, Avianca Holdings registered a 5.5% growth in transported passengers during the first three months of the year and an occupancy factor of 81.9%, especially for routes like Santiago de Chile that registered 89%. Therefore, 2017 beings with very promising numbers and we expect to meet the expectations of all stakeholders. (*Excludes Brazil domestic)

CAPA: How has the recent liberalisation in Argentina impacted your business plan and strategy? How do you plan to take advantage of opportunities in Argentina?

Hernan Rincon: For Avianca, maintaining a competitive position in all markets is one of the most important challenges. Since the end of 2016, Avianca went from four to seven weekly frequencies on the Bogota – Buenos Aires route, serviced with Boeing 787s with a 250-passenger capacity, for a total of 3.500 weekly seats in the market.

We expect the recent liberalisation to be implemented as soon as possible, because the Argentinian market has great potential to be serviced. This is all reflected in the first quarter of 2017, where routes to Argentina have registered one of the highest occupancy factors in history at 92%.

CAPA: What countries in Latin America do you believe are behind in terms of liberalization, infrastructure and taxes or fees? How important is for governments in the region to liberalise, change policies and invest on infrastructure?

Hernan Rincon: In terms of liberalisation there is no backwardness since countries apply policies depending on various factors, such as their geographical position and the need for air connectivity. Therefore, some countries find it more convenient not to liberalise their skies, without that signifying backwardness. However, liberalisation of direct markets between countries must be strengthened throughout the region, known in the industry as third and fourth freedom rights.

Regarding infrastructure, governments and airport concessionaires must grow at a pace equivalent or greater than air operators so that they do not limit possible market growth and the seat offer that operators such as us are able to offer the market.

Lastly, regarding taxes and fees, we must keep in mind that in most cases, taxes and fees represent up to 60% of the value paid by the passenger for the service. In this order of ideas, governments in our region must review the tax rate for air transportation and eliminate many of this value so that they stop regarding public transportation service as a source of financing. Beyond the possible income the sector represents through taxes or fees, Governments must see growth opportunities generated by aviation for a region through tourism, labor, investment on infrastructure and other aspects that end up being an economic stimulus.

CAPA: What are Avianca’s plans for capacity and fleet growth for this and the next year? What markets/ routes are your priorities for growth?

Hernan Rincon: Avianca Holdings continues to consolidate as one of the most relevant competitors for the region. In following years, Avianca will experience an accelerated organic growth that will allow us to advance rapidly with our strategic plan. Said growth is centered in increasing the capacity offered to the market through the continued fleet renovation plan, opening of new routes and increased frequencies.

The fleet renovation plan has the objective of incorporating more modern, efficient and environmentally friendly aircraft, that allow us to offer passenger more comfortable and safe travel experiences. Among our new incorporation are the Bowing 787-8 planes and the Airbus A320neo fleet. 

In addition, the company will focus growth at its connection centers, as well as of its strategic markets by promotion its route network, operating new destinations from Bogota, including Montevideo and Boston, that will operate in May and June, respectively. Also, during 2017, Avianca Holdings will increase the number of weekly frequencies of more than 15 routes, including national and international segments in America and Europe.

CAPA: How are LCC startups changing the market in Latin America, including some of your domestic markets (such as Colombia, Costa Rica and Peru)? How must Avianca respond and adapt as new LCC enter the market? 

Hernan Rincon: Lately, we have noticed how new companies, and some established ones, have adopted the low-cost model in the air transportation industry in the Latin American Region, expanding the market and providing access to more users.

It should be mentioned that Avianca has characterized itself for more than 100 years for being a full-service airline offering its passengers safe and innovative experiences. According to this, and the new trends of the industry, we continue with our bet of being a full-service airline that differentiates itself with its service, always seeking the greatest efficiency with a competitive cost position. Therefore, Avianca’s new strategy is to place the client at the center of the strategy, at the beginning and end of everything we do, supported by the best talent in the industry and the best technology available, making Avianca a renowned world-class airline.

This allows us to design an action plan that can provide exceptional experiences to our current and potential clients, getting them to connect with us and prefer us. We will continue to work each day by offering that extra mile, capturing the loyalty of those that are our reason to exist, so that we can be the preferred Latin American airline in the world.

Q&A with Jose Efromovich, CEO of Avianca Brasil and co-owner of Synergy Group

“we remain extremely cautious in terms of capacity growth”

Commencing scheduled services in 2002 as OceanAir, the carrier was rebranded as Avianca Brazil in Apr-2010. Avianca Brazil provides domestic services to destinations throughout the country, operating from its primary hub at Sao Paulo Guarulhos International Airport, with an additional base at Brasilia International Airport. The airline is owned by Brazilian conglomerate, the Synergy Group and was the group's first foray into the aviation industry before acquiring what was then Avianca SA in 2004. Tapping into the growing Brazilian aviation market, the carrier provides valuable feeder traffic for fellow Avianca group airlines. Avianca Brazil joined the Star Alliance in Jul-2015. As of the end of May-2017, Avianca Brazil’s fleet consisted of 46 aircraft and 70 aircraft on order, according to the CAPA Fleet Database.

NOTE: Synergy Group also owns a majority stake in Avianca Brazil, but the airline is not formally part of Avianca Holdings S.A. The Synergy Group also recently established Avian Líneas Aéreas (Avianca Argentina), which is aiming to launch operations in 2017 with a fleet of ATR 72 turboprops. Avianca Argentina but is also is part of Avianca Holdings.

Source: CAPA profile pages

CAPA: How are current market conditions in Brazil and Latin America and what is your outlook for the rest of this year?

Jose Efromovich: We are not out of the storm yet. Although we have seen a small improvement against 2016, demand is still very week particularly in the business travellers segment, which represent the largest share of our business. We do not see 2017 as the year of the recovery, but as the year in which the economy has stopped degrading. We are a little bit more optimistic about 2018.

CAPA: How has recent liberalisation in Argentina impacted your business plan and strategy? How do you plan to take advantage of opportunities in Argentina

JE: We just got the licenses to start operations in Argentina, so, yes, liberalisation in Argentina is impacting our business in a positive way. We believe that there are short-term opportunities, as domestic traffic is expected to increase. However, we remain cautious in terms of capacity deployment.

CAPA: What countries in Latin America do you think are still behind in terms of liberalisation, infrastructure and charges or taxes? How important is it for governments throughout this region to liberalise, change policies and invest in infrastructure?

JE: We struggle a lot with this issue in Brazil. There was a significant movement forward with the liberalisation of baggage charges, nevertheless there are several key issues with which Brazil is still not aligned with international best practices.

Everyone, both passengers and airlines, could strongly benefit from an approach to international standards. Extremely high fuel taxes only applicable to domestic flights and passengers compensation policies related to weather and infrastructure issues only increase the cost of air travel in Brazil, making it harder for an important part of the population to have access to air transport.

CAPA: What are Avianca Brazil’s plans for capacity and fleet growth plans for this year and next year? What markets/routes are your priorities for growth?

JE: For the reasons explained in the first question, we remain extremely cautious in terms of capacity growth.

We are taking delivery of new aircraft this year, however our key objective is to promote fleet renewal, not growth.

CAPA: What are your initial expectations for new widebody operations and the upcoming launch of services to Miami and Santiago? What other international routes are now under consideration? 

The launch of international routes is a project that was originally planned for 2015, nevertheless the economic conditions at that time made it an unviable the operation. We believe that, now, the necessary conditions are met and that there is a strong demand for the Avianca Brasil product and services. As for new routes, we are still accessing the next destination, but we can say that it will most likely be in the Americas.

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