The challenges of the Latin American airline industry

The Latin American airline industry has had the fastest recovery from the COVID-19 pandemic worldwide. According to data released by the International Air Transport Association (IATA), the region has recovered around 75% of its RPK compared to 2019 levels (the world average is close to 50%). Still, the industry is expected to lose up to 3.7 billion dollars this year. The challenges of the Latin American airline industry. Meeting in Santiago to discuss Latin American airline challenges For the last few days, Santiago de Chile has been Latin America’s epicenter for aviation. The country is celebrating both FIDAE’s (the oldest aviation event in the region) and IATA’s Wings of Change. Both events show the country is slowly opening up after a couple of years of severe travel restrictions. The airlines have gathered to discuss the challenges in the Latin American industry. These are many; from a fifth consecutive year of expected overall net losses to a lack of a framework to promote the development of sustainable aviation fuels (SAF), there’s plenty to tackle. Let’s take a look at a few problems, beginning with the most immediate. Travel restrictions Fortunately, the Latin American region is slowly opening up. A few countries like Mexico, Colombia, El Salvador, and the Dominican Republic are basically open for business and tourism. And they are reaping the benefits of being open with great recovery numbers and are looking at potentially fully rebounding in 2022. Others are easing up their travel restrictions. In the last few days, Brazil and Uruguay have announced fewer measures that will increase international demand. Ironically, one country that is the region’s thorn in the side is Chile. The government still maintains tight travel restrictions, which include an obligatory PCR before the flight, a bureaucratic process to validate one’s vaccination certificate, a seemingly endless series of online forms, and a lottery on arrival to determine if you need an additional PCR (luckily paid by the government). The airline industry made an urgent call to Chile’s government to ease the travel restrictions. We will see if they take note. Financial losses When the pandemic began, Latin American governments did not provide any financial help for airlines. We know that was a factor (among many) in the Chapter 11 bankruptcy processes by Avianca, LATAM, and Aeromexico, and the disappearances of other operators like Interjet, LATAM Argentina, and TAME. While the region has been recovering quite nicely from the pandemic impact, at least in traffic numbers, financially, Latin America remains unprofitable. IATA released some numbers and pointed out it is expected for Latin American airlines to lose about US$3.7 billion this year alone. The region has not been profitable since 2017! There’s a systemic problem that can be traced to high taxes, price-oriented customers, currency volatility, and weak economies. This year will be incredibly bittersweet. The industry in the region will bounce back from the crisis but will not make money. It will lose it by tons. As IATA’s regional vice-president said it today: if the airlines and governments in the region do not use this unique period when Latin America is appealing to travelers worldwide, and correct their previous mistakes, when other markets open (like Asia) and rebound, the losses will be much greater. Lack of framework This week, LATAM Airlines Group pledged to employ sustainable aviation fuels (SAF) by 2030. Approximately 5% of all its fuel consumption that year will come from SAF. While that promise looks excellent on paper, it raises many questions. The first and most important is: how will LATAM acquire the SAF? The airline said it will promote SAF production in the region and is already working with some producers. Still, Latin America’s SAF production is just crawling, and it has a long way to go, a lot of work to do in just eight years, which we know, are like the blink of an eye in aviation years. There is close to zero support from the Latin American governments, a lot of ignorance when it comes to the benefits of SAF but a lot of goodwill and resources. Latin America could thrive in the SAF industry if only it could do it right. IATA said it this week: investors are looking where to put their money in terms of green projects, and Latin America is, in theory, an excellent place to do it. But these investors need certainty, long-term vision, incentives, and government stability (among other things), and historically Latin America has struggled with all of these checkpoints. These are a few of the points tackled by the airline industry in the last few days. Later this week, I will discuss the challenges of the Latin American airports, which also impact the airlines. Keep tuned.

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