CAPA Latin America Aviation & LCCs Summit

There is a lot going right in Latin American aviation. Airport and airspace infrastructure is improving, and airline operating efficiencies are rising. Airport privatisation processes are well underway and the global alliances framework is well established. Open access arrangements are taking hold and regional economies are recovering, driving a buoyant travel demand picture. But Latin American’s full service airlines could be performing better, particularly in the mission to unlock top line revenue improvements. What are the strategies the region’s airlines should be adopting, based on best practice from other regions and other sectors? Can they better leverage data, loyalty, distribution and ancillaries to produce better revenue outcomes and thereby drive improving profitability?

CAPA - Centre for Aviation, Advisor, John Thomas [Download Presentation]

Latin American flag carriers have often suffered from the dominance of foreign airlines in key markets. US airlines, notably, 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 foreign 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?
• What's the appetite for foreign investment in Latin American airlines, and what is the reality that some of the more restrictive foreign ownership laws could change?
• Are more cross border equity investments likely as partnerships evolve?
• Are there opportunities for multilateral liberalisation that would benefit foreign airlines?
• Which markets are underserved and have the most potential?
• How can the region’s airlines better compete and capture their fair share on Latin America’s growing air routes?
• Will Latin American carriers grow their capacity share on intercontinental routes or will foreign carriers continue to dominate?

Moderator: Deutsche Bank, Managing Director, Michael Linenberg
Panel Members:

• Azul, Chief Revenue Officer, Abhi Shah
• United Airlines, SVP - Alliances, John Gebo
• Viva Air, Chief Legal Officer, Abel Lopez Campo

Coffee Break & Networking
Hosted by LATAM Airlines

Latin American airlines hold a reasonably positive outlook for 2018 as a crop of new low cost carriers continue full steam ahead in their efforts to stimulate traffic in the region, and larger network airlines balance new competition with their quests to build global network utility and pursue intra alliance JVs.

Steady capacity increases are planned for the domestic markets of Brazil and Colombia as both countries begin to recover from economic downturns but some uncertainty remains in Brazil pending the outcome of the Oct-2018 presidential elections. Increasing liberalisation has also helped catalyse the growth ambitions of LCC start ups. Chile, which allows 100% foreign airline ownership, has seen its airline duopoly disrupted by the arrival of the Indigo Partners controlled ULCC JetSMART, while in the once highly protected Argentina aviation market, one of the more closely watched developments will be the launch of Norwegian Air Argentina in Oct-2018, whose debut will put conclusions that the country is ripe for new low cost competition to the test.

But favourable market and regulatory conditions cannot overcome inadequate infrastructure and archaic air capacity management systems, with many of Latin America’s key markets in urgent need of infrastructure upgrades and air traffic modernisation to support airline growth. And the region is one of the most expensive in the world when it comes to passenger and airline charges - in some cases, taxes and boarding fees represent more than 40% of the final ticket price.

• Reviewing the core markets of Brazil, Peru, Chile, Colombia, Argentina and Mexico and prospects for growth
• Will an operating utopia ever be within reach for the region’s airlines or will infrastructure constraints and high taxes impede growth?
• Will pan regional brands come to dominate the competitive landscape?
• What is the current state of play of JVs and alliances among the region’s larger airlines and how effective is it as a mechanism for bolstering network coverage?
• Can Latin American carriers learn from their global counterparts and launch low cost subsidiaries to avoid ceding market share to LCC competitors?
• What else must they do to defend against LCC market incursions? How to bring Latin American taxes and charges in line with international best practice?

Moderator: ALTA, Executive Director, Luis Felipe de Oliveira [Download Presentation]
Panel Members:

• Aerocivil, Director, Juan Carlos Salazar [Download Presentation]
• Azul, Chief Revenue Officer, Abhi Shah
• IATA, Regional VP, The Americas, Peter Cerdá
• LATAM Airlines Colombia, CEO, Santiago Alvarez

Linking the high-growth economies of Asia with their Latin American counterparts has been alluring for many carriers, but distances and aircraft range limitations have proved barriers to greater connectivity, with many services until recently stopping via hubs in Europe, Africa and the Middle East. But over the last year, capacity between North East Asia-Latin America, particularly between Japan/China and Mexico, has grown at a rapid rate, thanks largely to the advent of fuel efficient aircraft such as the 787 and A350, which has made direct connectivity between the two continents not only possible but also economically viable.On the Latin American side, growth has been driven by Aeromexico, which is the only carrier from that region to serve Asia directly.On the Asian side, Hainan Airlines and ANA offer the only non stop flights to Latin America. China’s Big 3 carriers have also increased connectivity to Latin America in the last year - mainly to satisfy Chinese government objectives of making the country’s airlines more global - with Air China and China Southern currently serving the region via intermediate points.

• What will be the next air services links?
• What are the trade opportunities underpinning these new routes?
• What can Latin America markets do to entice more inbound travel from China and Asia?
• How are carriers utilising new fuel efficient aircraft to unlock network connectivity between Asia and Latin America?
• Will traditional hubs over Europe/Middle East/Africa continue to play a role in linking Asia with Latin America?
• What are the prospects for capacity growth from Asia into lower South America?
  Is through transit and more fifth freedom rights possible for Asian airlines wishing to serve Latin America via intermediate points in North America?
• Are Asian and Latin American carriers making the most of alliance and codeshares to expand network coverage?

Moderator: HEICO Aerospace, Business Development Officer, Alex de Gunten
Panel Members:

• Iberia, SVP, Network Planning & Alliances, Neil Chernoff
• The Boeing Company, Managing Director - Marketing, James McBride

Lunch Break & Networking
Hosted by Travelport

US majors have comfortably dominated capacity on routes between North and South America for decades, but new aircraft technology and a raft of new airline entrants are set to change the competitive dynamics of this market. Long range narrowbodies enable US ULCCs and LCCs to compete against the majors by bringing the deep south of Latin America within flying range from South Florida. Latin American LCCs such as Interjet and Volaris are also taking advantage of new technology to to go further into the US, but long haul international markets within Latin America also offer promising growth opportunities.

• What are the prospects for air service expansion on the crucial North-South axis?
• How is technology influencing network planning on North-South markets?
• Which hubs will be the winners?
• Are US ULCCs or Latin America LCCs set to usurp the dominance of the US majors in this arena?

Moderator: Oliver Wyman, Partner, Scot Hornick
Panel Members:

• Airbus, VP of Marketing Latin America & Caribbean, Paul Moultrie
• IATA, Regional VP, The Americas, Peter Cerdá
• The Boeing Company, Managing Director - Marketing, James McBride

Coffee Break & Networking

Hosted by Terpel

The expansion of low cost activity in Latin America has prompted the region’s major carriers to adopt new pricing models very similar to the tiered fare structures implemented by their US counterparts. They are engaging in product unbundling of non core services in selected markets, while retaining essential components such as loyalty programs, premium seating and free in flight entertainment in the bundled product. It is a form of price discrimination aimed at segmenting the market according to customers' willingness to pay, thereby maximising the potential revenue. But the success of the strategy hinges on carriers’ willingness or ability to cut non fuel unit costs - for example by lowering distribution and airport costs and increasing aircraft utilisation - and how effective they are in educating passengers on the ancillary model.

• Where are Latin American carriers in this process, and what is the reception for product unbundling in Latin America?
• Is the merchandising and sales capability at an optimal standard to enable proper product unbundling?
• Is product unbundling sustainable in the long term?
• Have the network carriers been able to achieve any corresponding reduction in unit costs?
• Do passengers understand the product attributes, or lack thereof, associated with tiered fares?
• What are the expected ancillary revenue gains given the historically low penetration rate of ancillary sales in the region?

Moderator: Oliver Wyman, Partner, Scot Hornick
Panel Members:

• Amadeus, VP Airline Commercial, Victoria Huertas
• LATAM Airlines Colombia, CEO, Santiago Alvarez
• Lufthansa Group, VP Airline Sales, The Americas, Tamur Goudarzi Pour
• Plusgrade, VP Business Development, Mike King

Legacy distribution systems have for decades presented airlines with the twin problems of high costs and product commoditisation. In efforts to address these issues, a handful of carriers have invested heavily into establishing their own API channels with agents, while the concurrent push by IATA for airlines to implement the NDC standard has encouraged the industry to adopt a retail focused approach to distribution. In this new modernised distribution landscape, itself reflective of wider consumer expectations around seamlessness and personalisation, new opportunities are emerging for other intermediaries and aggregators such as metasearch companies (some of which now have direct booking capabilities), as well as digital behemoths such as Amazon, Google, and Facebook - to gain a slice of the pie. It is clear that airlines, along with others in the supply chain, will need to evolve and invest in technology enhancements to avoid falling behind. GDS channels will also need to evolve their models to remain relevant as fragmentation becomes the new norm.

• How does airline.com compete in the era of conversational converse and new mobile, bot and voice technologies? Are there other distribution channels which airlines are underutilising?
• Is this increasingly fragmented and complex commercial and technological distribution landscape sustainable? How will business models evolve in response? Is there a need for a direct connect aggregator?
• Should airlines build lots of direct connects or revert back to lean, centralised distribution channels?
• Who is going to be offering services to bridge the gap between airlines/aggregators that are NDC compliant and those that aren’t?
• Will it be the GDS and IT providers, other airlines or speciality providers?
• How are newer intermediaries adding value to airline distribution?

Moderator: KPMG, Leader Aviation & Tourism LATAM, Eliseo Llamazares
Panel Members:

• Amadeus, Executive Vice President, Head of Americas, Amadeus Airlines, Elena Avila
• Avianca, Executive Vice President, Silvia Mosquera
• IATA, Regional Director, Financial & Distribution Services, The Americas, Alicia Lines
• Skyscanner, Senior Director, Commercial, Hugh Aitken

Networking Dinner at Adolfo Mejia Teatro
Hosted by SACSA & ProColombia