The challenges airlines face in Latin America: Colombia & Mexico |

Airlines in Latin America are often in one of the riskiest markets in the region. They face many challenges, from currency volatility to government uncertainty (see, for example, Peru’s recent failed coup d’etat). Additionally, regional authorities often see airlines in the region as, in the words of the IATA, a golden goose. Strong recovery, but challenges remain Across the region, most of the largest Latin American markets have recovered their pre-pandemic traffic levels. Some are already well above those numbers, like Mexico, Colombia, and the Dominican Republic. The region achieved an outstanding passenger recovery in 2022, but complex challenges remain unique to each country (although with a few commonalities between some of them). Two of the hottest markets in the region –Colombia and Mexico– have two of the most complex challenges. The Colombian case Between 2020 and 2022, the Colombian government reduced from 19% to 5% of the Value Added Tax (VAT) on the tourism chain, which fueled a strong and fast recovery. Airlines quickly began carrying passengers well over pre-pandemic levels, Bogota’s El Dorado International became Latin America’s second-largest airport in 2022, and the Colombian tourism segment boomed. Nonetheless, the VAT reduction came to an end in January 2023. This forced airlines to increase their fares, and bookings suffered. IATA recently requested the Colombian government to reduce the VAT again to stimulate demand and keep the post-pandemic recovery going. Furthermore, Colombia saw the disappearance of two airlines in 2023. Viva Air and Ultra Air, two ultra-low-cost carriers based in Medellín, ceased operations in February and March. Avianca became the apparent winner of this scenario, according to our analysis published earlier this month. This week, Albert Perez, senior vice president of Maintenance at Avianca, said that the company is very pleased with how the business plan laid out after the Chapter 11 bankruptcy process is currently developing. He stated this during ALTA’s CCMA & MRO Conference. The Mexican case Mexico has also lost two airlines during the COVID-19 pandemic (Colombia and Mexico top the list in the region of recent bankrupt carriers). But Mexico’s issues run deeper than the disappearance of a commercial company. The country remains downgraded to Category 2 status by the Federal Aviation Administration (FAA). Despite recent announcements by the Mexican government, there’s still no clear timeline for the country coming back to Category 1 status. Being in Category 2 “puts a brake on the continued growth of traffic between the United States and Mexico, which is the largest international market in the world if we discount the one within the European Union,” said Santiago Diago, Chief Operational Officer for Aeromexico. Additionally, Mexico City’s two main airports –MEX and NLU– are still giving certain operational challenges to the airlines. Diago said, “having two airports competing in the same leg is difficult. The operators who have a hub cannot divide it in two. In Mexico in particular, all those involved in this circumstance must sit down to find the best alternative for use in the current instance.” Finally, and this may change for better or worse in no time, the Popocatépetl volcano has increased its activity in recent days launching ashes and smoke to the sky, impacting airline operations. If this activity were to escalate, it would definitely impact the industry’s performance as the Popocatépetl is about 40 miles away from Mexico City. During the weekend, the ashes forced a five-hour closure of MEX and NLU.

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