Region Focus: Feeding into the South America market

Transcript

Alex de Gunten:Thank you for coming and still be around. I know we're getting close to the end, so I know it's not always easy to stay till the last, but I think we have a great panel here. And before I start, a couple of things. I want to thank CAPA for inviting us.

Peter Cerda:Thank you.

Alex de Gunten:I've been a supporter of CAPA for a long time. And I don't know if the picture— I believe the picture is still up there. You might notice this is one of the benefits if you keep going to CAPA for many years. They keep your old picture. So you look way younger.

Peter Cerda:That's right.

Alex de Gunten:I mean, if they would have put the original pictures of Peter, he still had hair then.

Peter Cerda:OK?

Alex de Gunten:So there are some benefits. The other thing I just heard about this— The evaluation, of course you have to say this was the best panel ever. We need it for the payment after. So anyway, now let's get a little bit more serious. Like I said, it's great to be back here in Calgary. I started my career here many years ago, I'm not gonna say when, as a ramp attendant at the airport.

Grant Whitney:I remember.

Alex de Gunten:And a honey truck driver. How many people here know what is the honey truck? No one?

Peter Cerda:Zero.

Gonzalo Schames:Zero. Okay.

Alex de Gunten:The honey truck is what we call in the ramp the truck that takes all the things from the lavatory, the honey, and you clean up the airplane. And I'm telling you that because it's the best incentive to go back to school and study. So again, it's great to be back in this beautiful, beautiful city. You might also ask yourself why somebody who works for HEICO, which hopefully some of you have heard is a fairly large aerospace company who do parts, MRO, moderating a panel on Latin America. And number one is Peter has already done 3 moderations. If they put one more, they thought it would be too much. But more, I hope more importantly, Thank you. I've lived in the region both in Canada, the US, and Latin America working for the industry. I used to run the bilaterals and alliances for an airline that was based here, Canadian Airlines, the old PWA when they bought Canadian, which is part of Air Canada. I was then regional vice president for Latin America for Canadian at the time, Air Canada now. I then took the opposite job for LATAM, another airline hopefully you've heard of, a very large airline in Latin America. I was the regional VP for North America from Peru up. And last, I was head of ALTA, which is the Latin American Air Transport Association, which is like IATA but much better for Latin America. By the way, if you notice that I'm picking on Peter, it's because he started this before. So we're trying to kind of balance things out a little bit. So we have a great panel today. We've got Grant, who you've already heard from him before also, so I'm not going to go into his explanation of CV or experience. You can go into the app and get it. Same thing for Peter. And the last person to join us, and he's coming all the way down from Buenos Aires, Argentina, and freshly arrived is Gonzalo. And Gonzalo, if you want to add a little bit about yourself for the audience so they know you a little bit better.

Gonzalo Schames:Thanks. Yes, I flew 17 hours and 43 minutes to get here. Well, thanks for the introduction. Yeah, I'm with American Airlines. I work in the company for the last 30 years and 11 months. I started as a part-time agent. Checking at that time, we were only 8 employees at the base. And now I oversee South America from Colombia down to Argentina, based in Buenos Aires. So happy to be here.

Alex de Gunten:Well, great to have you on the panel. Looking forward to hearing what American Airlines is thinking about the region and its plans, etc. So I want to get directly into the discussion.

Gonzalo Schames:I'll—

Alex de Gunten:but before I start, I want to share a couple of numbers. Some of them have This is a chart that has been shared before during the previous panels, but I think it puts in context the importance of the region to the traffic flows between North America and South America. I think it was Peter that mentioned that there's over 2.2 trips per capita in North America, in the U.S. Canada is around that range. Latin America hovers around the 1 trip per capita. So there's still a lot, depending on the country, some more, but a lot of potential from that perspective. Also, population growth of the region is much higher than the population growth that we have in North America. And today with the flexibility that we're seeing in terms of work environment, you see more people moving to the region or temporarily working from the region because it's cheaper, because of quality, because whatever. So again, there's more flows. All of this really makes Great, increases the potential between the 2 markets. So to start, I'm going to go through the 3 of you, ask you, give you 3 minutes more or less to tell me a little bit, tell us a little bit about your company and how do you see, why you invested in the region, what do you see in the region, and then we'll get into the pluses and the minuses. And I'll start from the largest. coverage in the region, and that's IATA. You represent how many airlines?

Peter Cerda:300.

Alex de Gunten:300 airlines. How many are making money? No, just kidding. Out of— so if you can start with IATA, and then we'll go to American and to Sun Country.

Peter Cerda:By the way, the airplane Alex used to manage was a DC-3. So we don't have to give the Time. Look, I think for Latin America, it's a region that has tremendous potential over the next 15, 20 years. We're expecting about 400 million new passengers to start flying for the first time. Actually, the number right now is 0.73 flights per capita on an average in the region. So when you look at countries like Colombia, Brazil, Chile, Mexico. There's huge amounts of potentials for more people getting on airplanes. Middle class is growing. The biggest challenge that we see is politically because we have such a large number of countries that are going through political changes and elections. So that obviously has impact. But the region after the pandemic is better connected than ever before. We've already surpassed 2019 numbers, recuperated on passenger, we recuperated on number of flights. You have new airlines entering the market, you have new airlines beginning to create new opportunities in markets. You have airlines like JetSmart that started in Chile and have now blossomed into Colombia, into Peru. You have LATAM going into Joint ventures with Aeroméxico growing. So from a landscape perspective, the industry is growing both regionally from the regionally based airlines as well as the international. The international airlines have really invested a large amount of resources into the region. Today you can actually say you could be any part of the world from Latin America with one stop, which wasn't the case 15 years ago. It is a very well-connected region. Where is the potential? Is particularly on the secondary markets. It's connecting other regions, North America, US, Europe to secondary markets and creating better connectivity between secondary and secondary markets. It's primarily, you know, in today's, you're having to go through Santiago or São Paulo or Buenos Aires to get to a secondary city within a major secondary city in the countries or flying within secondary cities in the country. So that's where we see the huge potential. It's really creating a better network between secondary markets, better utilization of the airplanes. The A321 long-range, the MAX are also going to be significant game changers. Because they're going to be able to fly longer missions, smaller airplanes that today you can't fly to Córdoba from Miami, for example. But you'll be able to do that with a 321LR in the future. And that will give airlines much more opportunities to grow. So from our perspective, we see tremendous opportunities, growth, connectivity. Middle class is going to help. The one thing is the political landscape, which is—

Alex de Gunten:Mm-hmm.

Peter Cerda:Somewhat fragile, and then the economics is also the other part.

Alex de Gunten:Perfect. And we'll get a little bit more into those points later on.

Gonzalo Schames:Yeah.

Alex de Gunten:Gonzalo, American is a small carrier, I hear, that operates in the region.

Gonzalo Schames:Yes, we're about to start. Agree 100% with Peter. We started back in 1990 when we took the routes from Eastern, and at the time we flew to a few main cities, and today we are flying to almost 100 destinations and over 330 flights a day, which is—

Alex de Gunten:That includes Caribbean?

Gonzalo Schames:That includes Mexico, Caribbean, and South America. South America, we have 15 destinations and an average of 32 flights a day. We got the widebodies to the deep south and we have the narrowbodies to Peru, Ecuador, and Colombia and Guyana. To have an idea, in Mexico only we have 28 destinations.

Peter Cerda:Yeah.

Gonzalo Schames:Only in Mexico. So our commitment and the importance of the region for American is huge. In addition to that, due to the customer demand and the nature of the destination, the Deep South destinations are flown during the night. So we take advantage of having that aircraft Seated during the day for 12, 14 hours. So we open tech ops bases. So we do a lot of maintenance work on our aircraft so they can continue flying for another 100, 150 hours.

Alex de Gunten:I mean, that seems, you know, in the long term and very inefficient. I know people prefer to fly at night because of comfort, it's because you save the hotel night, but with the cost of having an aircraft Parked all day, no intentions of going LATAM daytime flights through the region?

Gonzalo Schames:We do that in certain parts of the year, in our summer, your winter, because of the demand. But actually, if you put together the difference between having the airplane sitting there and pay the parking fees and the work that we've done so we don't have to take that aircraft out of service, For maintenance, then you have a huge advantage.

Grant Whitney:And in a previous life, I did some of that. You get— if you do that daytime trip northbound, you miss all the connectivity. So there's a really important component to get there when the hubs are full.

Alex de Gunten:Makes sense. Makes sense. Great. Grant? Snuck in on the American Airlines podcast. You snuck in.

Grant Whitney:Go ahead.

Alex de Gunten:Continue.

Peter Cerda:Tell us about Sun Country.

Grant Whitney:It's always fun to come on behalf of Sun Country because we're such We're just a unique airline. And so, you know, you wouldn't think it, but we actually have a pretty good-sized footprint in Latin America. Certainly not South America due to flying 737-800s, and from Minnesota the range doesn't allow that. But in, you know, from Minneapolis, we have the most nonstop destinations in the winter to this part of the world. We don't have the most seats. Other airlines can do that. But we take, you know, mid-teens destinations. We brought online recently Places as different, same geography, but as different as Roatán in Honduras, Grand Cayman, St. Maarten, gotten back into St. Thomas. And so what's been really exciting is there's just been demand, and we're definitely a U.S. point-of-sale, Minnesota point-of-sale airline, but our customers' willingness to go to these destinations has been really encouraging. And so Mexico came back really fast for us. And so the Cancun franchise has been doing really, really well. It attracted a ton of capacity this year. I think there was some nervousness in terms of just how the markets would handle themselves. And they were definitely down year over year, but off such a really high peak that we will sign up for similar levels of service next year. But then the breadth of the network is really exciting. And there's opportunities for us to not— to think maybe outside of— and this is definitely longer term, no imminent announcements from us— but getting, you know, we've done a really good job going leisure, spring break timing destinations, but there definitely hopefully will be an opportunity for us to round out on seasonality a little bit, those markets that may have a little bit more of a second quarter, third quarter demand spike, a little bit less of just leisure and maybe taking some folks back to visit families, relatives, that sort of traffic. So it's all within the construct of potential longer-term growth, but the market has definitely been strong for us.

Alex de Gunten:How much of your market is the region?

Grant Whitney:So in the winter, you know, we get into, you 25%, 30% of ASMs might be in that part of the world, a lot of that going into Cancun and those sorts of things. But then it shrinks in the summer, but then we start up a Dallas franchise where we're a pretty viable operator in the Dallas-Cancun market. So it's something that we have a— again, we're tiny, small, rounding error in the industry, but have some capability in the—

Alex de Gunten:Yeah.

Grant Whitney:In that, and specifically Cancun.

Peter Cerda:Excellent, excellent.

Alex de Gunten:Okay, well, I'm gonna— I'll get into the questions. However, please, I will go into some of the questions from Slido as we're going through the conversation, so feel free to include them. And continuing a little bit on the markets themselves, any new routes that you're planning? I know IATA is not flying airplanes yet, but American or Sun Country?

Gonzalo Schames:Well, we opened 5 new routes this year. We opened Ocho Rios in Jamaica. We opened Tulum in Mexico. We're going to open Veracruz soon. We opened Governor Harbour. And I'm missing one, but I'll tell you later.

Peter Cerda:OK.

Gonzalo Schames:But interesting to see that Tulum, for example, It's the first time that we open a station with 4 daily flights.

Alex de Gunten:With 4 daily flights?

Gonzalo Schames:4 daily flights.

Alex de Gunten:You went from 0 to 4 a day?

Gonzalo Schames:From 0 to 4 daily flights.

Peter Cerda:It's a brand new airport and that's the beauty. You know, you were just talking about Cancun and we know how popular Cancun has been over the years. You basically have a saturated airport. What did the government do? And actually, I think it was a very smart move. They built a new airport south in the Riviera Maya where it's a more developed The area is developing, brand new airport, and it's been a huge success. So you're going to be able to offset a little bit of that congestion further south because tourists will also go south. So we have a new infrastructure that's going to be available for the industry and the traveling public.

Alex de Gunten:Excellent.

Peter Cerda:Excellent.

Alex de Gunten:How about Sun Country?

Grant Whitney:So as I mentioned, we are keeping apprised and we have a look at what's going on. The one thing that I will say is we're also contemplating adding service into existing markets because a lot of our longer-haul Caribbean markets fly once a week and those flights have done pretty well. And so we're balancing a little bit. Do you sort of grow your winners that you've already started and maybe add a second frequency? We did that in St. Thomas last year and it proved successful. So we're balancing sort of do we go into new markets or do we add capacity?

Alex de Gunten:What's your furthest point you go in the region?

Grant Whitney:Aruba, I think, is the longest But you could—

Alex de Gunten:your aircraft could—

Grant Whitney:Aruba's about as far away. But you arc Aruba, and there's some other things that might come into the consideration set that we're looking at.

Alex de Gunten:Okay, great.

Gonzalo Schames:If you allow me, I want to validate something that Peter mentioned in his previous panel about how airlines learn to be nimble and fly whatever— as he said, in the past we used to fly to a destination. And we have 1 or 2 flights a day all year long, no matter how the demand was or how the market conditions. Right now, if you have to do a seasonal flight for a 3-month period, let's say the summer, or for a— we're putting a flight from Philadelphia to São Paulo just for the Eagles.

Grant Whitney:Oh, the football game, yeah.

Gonzalo Schames:Because they're going to play in São Paulo the first game of the year. So that kind of things are, after pandemic, are much more normal. And I think that's where we're all going.

Peter Cerda:And I think that's a positive aspect. The industry is willing to invest and take some risk. You look at Brazil, for example, our biggest economy was poorly connected to the West Coast of the US, which then feeds on to Asia. Now you have a flight from São Paulo to LA that it's a That's right. It's gone very well because the conditions, they had the right airplane, and you could take those risks. You look Mexico City to Madrid now, you have a flight between those 2 countries almost every 2 and a half hours. Think about it. Mexico City, Madrid, 2 and a half hours you have a flight that's crossing the Atlantic somewhere. So the industry is really evolving. They're willing to take the risk if the conditions are optimal, and we're seeing it all across the region.

Alex de Gunten:Excellent. Partnerships. Start with American. You were a long-term partner of LATAM, and that changed a few years ago, a couple of years ago.

Gonzalo Schames:That changed a couple of years ago. Now LATAM is with a different partner.

Alex de Gunten:Another smaller airline we won't mention.

Gonzalo Schames:Yes. And we have new partners in the region which are extremely Extremely important for us. GOL in Brazil, largest carrier in Brazil. And JetSmart, part of the Indigo Partners Group.

Alex de Gunten:Yeah.

Gonzalo Schames:Huge player in the region, growing very fast. They opened JetSmart Colombia. They had JetSmart Argentina and Chile, of course. And they opened JetSmart Peru and JetSmart Colombia. And they continue to grow. They place a huge 320s order. order a few years ago, like 150 aircraft, and that's a great partner and allows us to offer our customers the best possible network in the region.

Alex de Gunten:You mentioned GOL. GOL is part of the Avra Group, which is part of Avianca, which is a partner with United. How does that work?

Gonzalo Schames:GOL is our main partner in the region. is extremely important. We feed their aircraft and they feed our aircraft every day with a big percentage and we do value that partnership a lot.

Peter Cerda:And I think, Alex, that's, I think, what's so interesting, so dynamic in the industry. And a lot of it is happening actually in Latin America. It's the first place where you'll see a ULCC partner with a legacy carrier in JetSmart. And yesterday we were talking about Viva, Airbus, and Iberia. You're beginning to see the dynamic. It's not only about being in the alliances anymore.

Alex de Gunten:And if you look at the Alaska Airlines example, they partner with everybody. They have codeshares with everybody. They don't care.

Peter Cerda:So I think that as an industry, we continue to look at ways to give— bring more connectivity at a better price. Lowering your operating costs and increase your competitive advantage because it's all about competition and being ahead of the game. And when you're looking at evolving markets, and Latin America is still very much an evolving market, you want to get in there early and you want to have the right partners to be able to have the advantage over the competition.

Alex de Gunten:And Sun Country, any possibility of something happening?

Grant Whitney:Yeah, no, there's definitely a possibility, but this gets back to a lot of the talk yesterday, sort of the legacy systems systems versus the systems that we use that work really well for merchandising when we have customers come directly to us. I think we do an extremely good job on that. Some of our gaps are connecting into those legacy systems in a manner that allows it to be useful for our customers. All that being said, I agree with the comments that this is a world where the dynamic components of relationship building is Intriguing, and it's something that's not imminent, not even probably medium term, but something that would be hugely interesting to us is if you could build some level of partnership. I would not use the word code share, but just interline the ability for customers to sort of traffic to each other, build broader list of itineraries in a sort of decent framework.

Alex de Gunten:We've focused so far mostly on passenger side. How about cargo? How's that market doing?

Gonzalo Schames:The region is really— the cargo business is really important in the region. We have a lot of cargo-only aircraft coming to the region with huge competition. Demand is still strong even though cargo demand is down from previous years due to much more competitors in the But the business is really strong, especially in Chile, Argentina, and Brazil with the products, seeds and fruits and fish and beef and all the things that we export from that part of the world. And of course the flowers in Colombia and Ecuador. It's a huge business for us.

Peter Cerda:97% of flowers in the world come from Ecuador. Those 2 countries and it's exported by air. So it's not only important for air transportation, it's very important.

Alex de Gunten:Is it a very seasonal market, the flower, or is it fairly stable? I mean, Mother's Day, I'm sure you should pick up. Valentine's and those things.

Peter Cerda:It depends. If you misbehave, you have to take flowers to your wife. Flowers are flowers. This is one of those commodities which I think is year-long. You have your peaks and valleys. Same thing with the fish in Chile or the meats in Argentina. They're products that need to go by air. It needs to be done fast and efficiently and air travel is the best way to do it, particularly when you want to get those products to the other side of the world.

Gonzalo Schames:Just to give you an idea, Chile produces so much salmon, they don't have enough capacity to bring it to the United States. So they truck every day from Chile to Argentina, which is a 24-hour trip by land. So we out of Argentina— You ship it. Take the salmon to the United States. And once it gets to Miami, it's already USDA approved, the Department of Agriculture. So probably an hour later, the salmon is in your supermarket. So you can eat fresh fish in Chile.

Peter Cerda:And I think the other is e-commerce. We take it for granted here in North America, but it's still very much developing in Latin America. And once that begins to boom, that's going to become even much more important.

Alex de Gunten:Well, talking about e-commerce, Sun Country, you have a very interesting relationship with a small e-commerce operator called Amazon.

Grant Whitney:Yes. Tell us about it. And it doesn't sort of go into this part of the world, but our diversified business models really important component of how we go to market. We do it effectively in our 3 lines of business, certainly on the scheduled service side. I think over the last 5 years we've done an amazing job sort of building out our leisure franchise in the Twin Cities. It— we've sort of gained market share, but we've done that at the expense of other carriers, not the incumbent carrier up there. So that's gone really well. On the charter side of the business, We've really worked on and developed relationships with our biggest customers who come back to us month in and month out, and that's going really well. And then right before the pandemic, we, you know, we at the end of the day, our core competency is flying airplanes, and at the end it doesn't really matter what you're carrying, be it customers, charter customers, or cargo. We have a relationship with Amazon where we fly airplanes on their behalf, you know, much akin to sort of how a regional carrier operates on behalf of a large network carrier in the United States, where sort of the big carrier tells you when to fly and they do all the commercial components of it. You're just obligated to operate the schedule they tell you, and that's the relationship. But I would say at a higher level, the dynamics of that diversified business for us work really well because, as we all know, the airline business can be somewhat volatile. So to the degree you can take some of that volatility out, it's a good thing for the stakeholders of the airline. Absolutely.

Peter Cerda:Absolutely.

Alex de Gunten:Well, let's look now at the other side of the equation, which is what are some of the challenges of Operating in the region and that is restricting maybe some of the growth that you're forecasting and you're planning. Let's go with the political. You started, you mentioned the political issues. Ecuador was a big issue. Venezuela tends to be an issue every so often. How do you deal? How do you work in those markets?

Gonzalo Schames:Yeah, the region has, and I would say that probably is the The biggest challenge is the political and economical situation in certain countries. Venezuela, as you mentioned, we don't fly there since a few years. After having some, a list of issues, we decided to pull out of the operation, plus a restriction from the U.S. government that has an embargo on Venezuela. You mentioned Ecuador. Some serious incidents and security issues in the country and some big violence and with the—

Alex de Gunten:But are they overblown? I mean, we know the State Department comes out and makes an announcement, you know, this country. I was in Ecuador about 4 weeks, 5 weeks after all. And you went and it was okay. I mean, you didn't feel 100% secure, but I don't feel 100% secure in any of the major cities Around the world nowadays, you're going to be careful everywhere.

Gonzalo Schames:So life goes on for them. They are so used to this kind of stuff, and we are so used to these kind of things in our countries that, as you mentioned, you've been there and you have, you know, you could go out and do kind of a normal life. But for an airline, it's quite different. We have crew involved that stay there for 1 or 2 days. We have our own team members So we had some disruptions during those days. Now fortunately we're back to normal. And we have a big operation in 2 cities, so that's something that we look really carefully. And the third one I would say, I would mention is Argentina with a huge economical crisis and political crisis that lasts for the last 60 years, I would say.

Alex de Gunten:It's unfortunate.

Gonzalo Schames:Our business is good and it's still good, but it's a shame that it's a country with so many opportunities that never saw the falling.

Alex de Gunten:For those in the crowd that might not be aware, Argentina has gone through— what's your inflation rate right now, approximately?

Gonzalo Schames:For the year or for the month?

Alex de Gunten:The month. We'll multiply by 10.

Grant Whitney:10%.

Alex de Gunten:How much?

Gonzalo Schames:10%.

Alex de Gunten:So it's over 100% a year in terms of inflation, and on top of it, You've got restrictions as to how you exchange. The exchange rate is— how many different exchange rates do you have in the country?

Gonzalo Schames:We have a few, but the unofficial market is quite bigger than the official market, so there's a— it's very hard to project business and think, Mid and long term in any business, unfortunately.

Alex de Gunten:What's IATA trying to do to help the airlines sell in these countries?

Gonzalo Schames:Before he speaks, I have to say that IATA plays a significant role during the big crisis we had in the last 2 or 3 years, helping the airlines make sure we can repatriate our funds back to our headquarters.

Peter Cerda:So, IATA—

Alex de Gunten:Go ahead.

Peter Cerda:No, it's a fun— look, if you look at the region, the economics, the social and political landscape is consistently shifting. And again, you know, we've been talking throughout the day how volatile our industry is and we're always in these very thin margins of success. And we're always consistently adapting. And you look at a country like Peru which is significantly impacted by social unrest that impacts travel and tourism. People stop going. While you may perceive it, as soon as the U.S. government or a government says watch out, your numbers tank.

Alex de Gunten:We were going in a group with some friends and out of the 6 people, 2 said I'm not going to Ecuador because I read this.

Peter Cerda:So, you know, it is a challenge. The political landscape is— and we were talking about Canada— you can almost mirror it. The political challenges that we face in many of these countries are very, very difficult in a region that is highly dependent on air service. Now you look at a country like Brazil. Brazil is the size of Europe, continental Europe. That's how big Brazil is. 200 million people. A quarter of the population have been on an airplane. And it's just a difficult country to do business. That's why you don't see the ULCCs going to Brazil. It's the only country in Latin America where you do not see ULCCs implanting themselves. Yet.

Grant Whitney:Yet.

Peter Cerda:But probably by next year we probably won't see them either because it's very costly. You have a 14% fuel additional charge on domestic fuel when it's a country that produces fuel. But they tax you as if you're importing. So it's a very difficult country to do business. So the costs go up. So that's why, you know, I'm very optimistic we have opportunities, but the political landscape is a deterrent in doing business because it is so bureaucratic. In some cases, very difficult to even overcome. The case in Argentina, when your inflation is consistently changing and you have to fight the unions and you have one ground handler And you're competing against a state airline that has 100% subsidized. You're rethinking, is Argentina a really interesting market for me to stay in? And LATAM said, no, I'm pulling out. And they did. So it's a challenging environment that we have to adapt in. But like in the industry we are.

Alex de Gunten:But that's the region. If you want to work in the region, you have to take a long-term perspective and you know you're going to have ups and downs. That's the only way it works. I want to get a little bit into the cost, but there's a question actually that addresses that, so I'll read it. How is Sun Country managing its flights to Vancouver given the higher cost of operating in Canada?

Grant Whitney:Yeah, no, it's a good segue from this discussion. The operating conditions when we get outside of the US require more engagement and time and energy from a pretty small staff. Frugality sort of at our core. So I would sort of turn it around a little bit and just give a shout out to the folks at Sun Country. I've never worked at an airline where there's a more can-do spirit. It's very gratifying to come in every day. What I say about Sun Country and the people there, you can put a problem in front of them and it's unlike anything I've ever seen in the industry. Work together, be creative, be tactical, and they'll get around it. So I think it's a shout out to that team that we're able to fly into as many airports in Latin America that we are successfully on our crazy scheduled basis where we start on a certain time, fly it, and then get out. And that's how we operate. So I just— it can't go without saying that our team's really, really good at that. And we have come to Canada. We started Vancouver a few years ago. We've been in Seattle for a long time. And so as I compare and contrast the demand patterns to Seattle, it got off to a little bit of a slower start. And we had— we learned a lot. The, the, the just what we had to do to operate into the market, I think surprised some of us. There were some things we probably didn't know right off the bat. So we've been Adapting. We're in our 3rd year in Vancouver and we're getting there, but it definitely requires a lot more expended energy than a domestic market that we fly to, and the costs are significant. And so as we look through, you know, we make network decisions based on profitability, expected profitability, and what that asset could be doing in the exact same time channel. And we're constantly gyrating to make sure that we're optimizing profitability. The one thing I will say is we're also starting Toronto and Montreal this year. And those 2 have come with the, you know, again, shout out to the teams. We're ready to go. And we do it even more complicated than you can imagine. A lot of airlines would just come up, do the turn, and it's scheduled service. No, not Sun Country. We fly the MLS teams on a charter basis, and we do that pretty much across We do do it across the board.

Alex de Gunten:Mm-hmm.

Grant Whitney:And so what we'll do is to integrate our lines of flying to maximize profitability. We'll fly a scheduled service flight into Canada and then transition and then take the airplane, turn it into a charter airplane, fly the team out, go to wherever they're going, and we'll undo that and do the reverse to bring them home. And so that's a long-winded answer of saying that Canada is a great market. We're operating here, but I would echo the sentiments previously today and yesterday that the difficulty, the costs, it's real.

Alex de Gunten:It's a challenge. It doesn't help having high costs. You're competing, like you said, against other markets. You have high costs, you're going to go somewhere else if the revenue is similar.

Grant Whitney:If you get disproportionately different revenue, then it can balance out.

Peter Cerda:But if you don't, Yep.

Grant Whitney:Then it's going to be hard to justify it. And so, you know, we should regroup next year and we'll see how this year went.

Alex de Gunten:We'll see how many new destinations in Canada you have.

Grant Whitney:Yeah, yeah. And for us, it's really easy to keep score. If we grow the market, if we extend the season, if we add extra frequencies, then you know it did well. And if it goes the other way, then the numbers didn't— weren't probably where we wanted them to be.

Alex de Gunten:Well, there's a question that I'm interested to see how Peter will answer. As to Arajet, what's the concern in terms of Mexicana, the new Mexicana, if it will create market distortion?

Peter Cerda:I'm not too concerned because I think they have 2 airplanes and they're barely flying. But I think the important thing here is regardless if it's a government-owned airline or not, subsidized, what we always preach for is you have to have a fair playing field for all. If the government wants to invest in a new airline, you have to create the market conditions that everyone else can compete at the same level, which is something that we've seen in other markets that hasn't been the case. So that would be my short answer to the Mexicana thing.

Alex de Gunten:We talked before about the airports and the new markets you're looking at. How is the airport access situation in Mexico? Latin America in general? What are the very congested markets? Can you, if you want to, the demand is there, you wanna put more flights to São Paulo or to Buenos Aires or whatever, do you have that flexibility or is that a constraint?

Gonzalo Schames:In most of the airports, no.

Alex de Gunten:No constraint or no?

Gonzalo Schames:No flexibility. No flexibility, just no. Airports are up to the limit, I would say. The slots that they would have are not really convenient to operate. We have airports like Lima and others in the region that are under construction and new terminals are being built. So we expect some good development if they allow airlines and other entities to cooperate with them. But yet the capacity is really limited and challenging.

Peter Cerda:And it's probably one of the regions that has invested most in infrastructure. infrastructure over the last couple of years. You look at Buenos Aires, Santiago, Lima, these are all airports that increased their infrastructure. The minute they opened the new terminals, the airports were saturated.

Grant Whitney:Yeah.

Peter Cerda:Because everyone had already purchased airplanes, had planned for that increase. So, you know, it's great to hear in the region, you know, airlines want to come, but the biggest challenge that we have from an infrastructure standpoint is we don't have enough space. And that's going to be a big problem moving forward as more airlines want to get in. into these markets, they want to increase capacity, they're not going to be able to because most of these airports are actually becoming slot-regulated airports. And to the point we were talking before about politics, in Mexico City, for example, 7 years ago we were in the process of building a brand new airport in Mexico City which would have served all our needs. Politically, you had another government, the opposite government came in, 6 years later that airport was scrapped They built a new airport in which you have about 45 operations per day, so it's underutilized. And in order to push more airlines there, they brought the capacity down in the main airport to try to push everyone. That wasn't successful, so for my poor cargo operators, they pushed all the cargo operators. So you see how infrastructure and politics sometimes come in where only 70 years ago the country was on its way to probably building the biggest airport that we had in Latin America to now have a very decentralized structure in place and not really a very good vision in terms of, or strategy in terms of where we go in the future.

Alex de Gunten:Well, one last question because we're running out of time, or ran out of time, which is related to this. On the airport side, do the incentives that the airports, especially in the Caribbean and some other locations, do they change your mind? Do they really make the difference?

Grant Whitney:I always like to see them because I think it feels like there's a shared risk component to it. But I'm still a big believer in if there's not a market there, it's hard to—

Alex de Gunten:You're not going to buy—

Grant Whitney:If there's no market there, incentives and better revenue management aren't going to deliver you profitability. You need customers and demand and a storyline for that.

Alex de Gunten:Absolutely.

Gonzalo Schames:Agree.

Alex de Gunten:I also agree. Well, thank you very much, gentlemen. Great panel. Thank you. Please join me in thanking the panel for this.

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