The Latin American and Caribbean Air Transport Association’s (ALTA) Airline Leaders Forum wrapped up earlier this week. During a couple of days, the airlines’ executives gathered and talked about the recovery in the region, which has varied dramatically across the different countries. So, what did we learn about the Latin American airline recovery?
Open borders equal faster recovery
The airline industry members had nothing but nice words towards the recovery that’s happening in countries like Mexico, Colombia, and the Dominican Republic. These three countries have bounced back from the COVID-19 pandemic faster than their regional peers like Brazil, Chile, or Argentina. The quicker you open, and the fewer travel restrictions you impose, the faster you’ll be back.
Mexico could even be back on the growth trend by December, Michael J. Linenberg, Managing Director and Analyst at Deutsche Bank, said. In September, the Mexican domestic market was only 9% below its pre-pandemic capacity levels.
Internationally, the Latin American region is also performing above average. Mexico (once again) has surpassed the pre-pandemic capacity it had with the world’s largest aviation market, the United States (despite being in Category 2 with the FAA). Latin America, excluding Mexico, has recovered its capacity at the same rate as the US domestic market. So, pretty good.
Nevertheless, the Latin American market has a lot of challenges before coming back from the COVID-19 pandemic. Lack of infrastructure, coordination between countries, and poor financial performance are the biggest challenges.
Between 2021 and 2022, the Latin American Airlines will lose US$9.3 billion, according to the International Air Transport Association (IATA).
Deutsche Bank believes the region will get back to profitability in 2023. The bank believes Aeromexico, LATAM, and Avianca’s Chapters 11 will allow them to have a better cost base, improving their profitability, similarly to what happened in the US following with the many Chapter 11s earlier in the century.
Michael J. Linenberg said,
“I believe that coming out of this, Latin American carriers are going to have more of their cost structure variable than fix coming in because they have been forced to go back and rethink their business models. If you look at LATAM, in their plan of reorganization, they are specifically calling out the fact that the first couple of years post coming out of their restructuring, 80% of their costs is going to be variable, and that compares to their historical rates of 65%. We’re going to see structural changes.”
Infrastructure and regulatory concerns
The airport constraints will come back faster than imagined. It is only a matter of months before very important hubs in the region like Mexico City, Bogota, and Lima are back to face the issues they had pre-COVID. Just as an example, this author’s flights between Mexico City and Bogota faced some sort of delay due to air traffic congestion.
The local governments have been slow at improving the airport infrastructure in the region. This lack of work will hamper the future recovery and growth of the airline industry.
IATA also sees regulatory concerns going forward in many topics. For example, there are very few incentives to develop Sustainable Aviation Fuels in the region. On the other hand, governments are increasing taxes, only adding frustration to the airline industry.
The areas of opportunity
ALTA’s CEO, Jose Ricardo Botelho, talked about revenge tourism. He said that Latin America is poised to benefit significantly from the post-COVID-19 traffic surge due to the many advantages it has.
First of all, the Latin American region is packed with open spaces and nature destinations, which have become favorite spots for the post-COVID traveler. Then, the area is so close to two of the most important markets, the US and Canada.
Nature also introduces a new area of opportunity going forward to develop SAF across the region. There are many initiatives towards producing SAF with local resources, like Mexico’s plans to turn the sargassum algae into fuel.
So, what did we learn about the Latin American airline recovery? The next few years will be critical towards the development of the airline industry in Latin America. The region has an unexploited market ready to boom; we should have a couple of fun years ahead of us, and we can only expect to see many developments in the area, from the eVTOL revolution in Brazil to low-cost boom and airline consolidation with possible mergers like Avianca and Sky Airline.