- Passenger traffic (RPKs):
- Load factor:
Brazil's domestic pax traffic down 1% in Jan-2013, int'l pax traffic up 10%
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Latin American airlines work to attract investors. Ownership laws a hindrance in tough economics
Economic and political upheaval in Brazil during the past couple of years has essentially isolated many of the country’s companies, including airlines, from credit markets. Some of the country’s legislators made a bold move earlier in 2016 to lift all foreign ownership restrictions on airlines; but that specific element of legislation was vetoed by the country’s interim government in order ensure other pieces of a larger bill were ratified.
The push for 100% foreign ownership still appears to have some momentum in Brazil’s uncertain political climate. The country’s transportation minister has reportedly stated that the debate over foreign ownership is not over, and he aims to push for re-opening the discussion about ownership caps in the country’s Senate.
In the meantime, Brazil’s 20% foreign ownership cap remains at status quo in a fast-changing Latin American aviation landscape where Avianca is courting foreign investors and Qatar has just tabled its plans to take a 10% share in LATAM. It would be an unprecedented move for Brazil to allow for 100% foreign ownership of its airlines but raising the cap to 49% seems reasonable, and could possibly help Brazil’s largest airline Gol as it works to restructure billions in debt. But changes in ownership laws may not result in investors flocking to Gol when other Latin American airlines offer less risk to investors.
The Trump presidency casts a long shadow over a tentative recovery in Latin America
After battling dismal economic conditions for the past two years, Latin America is poised to begin pulling itself out of fiscal decay in 2017. Near the end of 2016, forecasts tilted toward a return of modest GDP growth between 1.5% and 2% for 2017 after the region endured an economic recession for the prior two years.
But the emerging optimism was significantly clouded when the US selected Donald Trump as its next president in Nov-2016. An already weak Mexican peso (MXN) plunged against the US dollar (USD) on fears of a Trump Administration abolishing NAFTA, engaging in mass deportation and following through on plans to erect a wall on the US-Mexico border. Economists have already issued revisions to Mexico’s projected economic growth for 2017, and the benefits of a new liberalised bilateral between the two countries are in jeopardy as airlines have to adjust their growth prospects to reflect a potential new era of protectionism.
Broader implications of Mr Trump’s presidency on Latin America will emerge over time; hopefully they will not be as sombre as the politicking noises might suggest.
But even so the current cloud of continuing uncertainty ushered in by his election could become an impediment to recovering economies and air traffic flows within, and to and from the region – just as demand was starting a tepid recovery near the end of 2016. Any downward revision to Latin America’s economic forecast for 2017 places airlines operating in the region in a precarious position.