Sky Airline – “We Are Concentrating On Having The Lowest CASK In The Region”
The CEO of Chile’s second largest airline Sky talks about changes in the country’s domestic market and the company’s move into the Peru, concluding only 5% of Peru’s local industry has the LCC model. He also discusses the need to differentiate taxes on long and short haul flights.
Transcript
Holger Paulmann:It's still evolving, I would say, and but it actually— the biggest change happened when we decided to turn into an LCC, and this actually generated LATAM merging towards an LCC also, or converting into an LCC, and we were able able to stimulate demand that year like 6.5 times GDP, during even 9 times the GDP growth during the first half of 2017 before JetSmart entered the market. So we were already stimulating a lot of demand and LATAM was losing ground against us at that time. And now with JetSmart entering the market also, that trend has continued. to be the case. So it's a big benefit for customers, and we're actually kind of operating a similar business model. We are very concentrated in having the lowest CASK in the region and transferring the lowest tickets possible to the customer, to the end customer. So It has changed. It's become more competitive, and I think next year the fares will continue dropping at least another 10 to 15% because we're now starting to receive the A320neos. And nowadays we have the— most of our fleet is A319s, and it's a less— it's the least competitive aircraft in the local market in Chile. And we're going to be the first LCC in South America to receive an A320neo. And in that, I'm not considering Azul as an LCC. For me, Azul and GOL, they're more like a hybrid. They're not really an LCC. And so we're going to be the first LCC to receive the A320neo in South America. Peru for us is— we're not looking necessarily into the markets in the short term. So we're looking into being the best LCC for South America. And we decided Peru was the best next step to expand our operation outside of Chile. We think we have the model running well in Chile, and we're ready to expand our operation to other countries, especially now with the new fleet, with the A320neo. So Peru, there's a lot of operators right now in Peru. But most of them still have the traditional business model. Only 5% of the local industry has the LCC model. So the rest are maybe LCC wannabes, but most of them are operating with older aircraft or they're a full-service carrier with a newer fleet. So in that regard, I think the market is expecting a real LCC to enter with new aircraft, and that's what we're going to offer. We've been looking into Argentina for a while. We've been talking with the authorities in Argentina also, and right now we're seeing that they're taking the steps in the right direction. Steps for, for me that should have been taken at least 2 years ago, and now the government is willing to take more risks and reducing the fares, but for over 30 days prior to flight, which is a good start, but not enough, I would say. And then the reduction on taxes also for Palomar, I think should be for all the airports in Argentina, for the international flights, especially for their short-haul international flights. I think that's what's really needed in our region in general, is that we should differentiate long-haul international flights from short-haul international flights. And the authorities shouldn't be charging the same taxes for a long-haul than a short-haul. And we're going to continue pushing in that direction. I think we started the movement in Chile for the Chilean government now being able to— or Willing to reduce domestic taxes. Taxes are going to be reduced. The airport fee is going to be reduced by 20%, probably starting October. January 2019, it's going to be reduced another 10%, and January 2020, another 10%. And we've been able to align everybody in that direction to finally get the government to accept this reduction in airport taxes. And the next move is going to be for the international short haul within the region. So I hope that— because that's a huge market that has really not been offered a good service. So Argentina is within our scope, but not in short term. I think there's some other issues that need to be solved. Thank you.
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