During a pandemic that has wreaked havoc with global travel, Enrique Beltranena is something of a rarity: a happy airline boss.
Volaris, his Mexican low-cost airline, has added, not cut, routes during the crisis, has a healthy balance sheet and is “cautiously optimistic” in its outlook, he said.
But with three major carriers forced into bankruptcy protection and another three halting operations altogether because of the pandemic, Latin America is staring at a difficult future for its industry and the likelihood that travel options will be permanently reduced.
The region that remains the centre of the pandemic — with nearly 40 per cent of daily deaths — sucks up money from tourism in a normal year. This year is exceptionally bad and likely to remain so, with travellers seeking to escape the northern hemisphere winter expected to stay away, in part because of restrictions on flights to Europe from all Latin American countries except Uruguay.
“What all this process is going to do is delay growth [of the industry] in the region,” said Pablo Ceriani, president and chief executive of state-owned Aerolíneas Argentinas.
Peter Cerda, vice-president for the Americas at the International Air Transport Association (Iata) believes many regional airlines will come out of the crisis smaller and operating fewer flights. “That will limit opening new destinations,” he said.
He expects it will take until 2024 for international flights to recover to pre-pandemic levels and that even domestic routes will take until 2023 to pick up.
Within the region, people will start to travel again, especially to visit friends and family, but they are unlikely to journey far. “Long-haul business travel will take longer to recover,” he added.
Stephen Trent, director of Americas airline research at Citi, said Mexico, Central America and Colombia remained “within short-haul international flight range from the US” but for the south of the continent, “it’s a different issue . . . maybe now there’ll be sparser choices for example for flights from the US to Buenos Aires”.
Flights between Latin America and both Europe and Asia are also likely to become less frequent.
In the short-term, Mr Trent said, low cost airlines with smaller balance sheets, less debt and lower fixed costs will have an advantage, if demand for shorter routes recovers more quickly, as expected.
Volaris is one such potential winner. It had already overtaken Mexican flag carrier Aeroméxico as the country’s largest airline in passenger numbers even before the pandemic and its cost per available seat mile, a metric used to measure efficiency, is roughly a sixth of Aeroméxico and Copa Airlines, Panama’s flag carrier.
Mr Beltranena prides his airline on having the third lowest unit cost in the world, behind Budapest-based Wizz Air and Malaysia’s AirAsia and on a par with Ireland’s Ryanair. All its 84 aircraft are leased, it has $436m in cash and no debt to repay before June 2021.* At the end of this year, it hopes to be back to 85 per cent of capacity, he added.
“We’ve had to open new routes — five domestic and five international,” he said of Volaris, which floated in 2013. “The next five to six months are going to be defining for Latin American airlines but Volaris will be one of the big winners.”
Covid struck Latin America at the end of February, prompting severe travel restrictions in some countries with some dramatic consequences. In Mexico, for example, the number of international carriers serving Latin America’s second-biggest economy nearly halved between April and July, from 64 to 34, according to the country’s federal civil aviation agency.
Few regional airlines have the liquidity to weather more than seven months of low or no income, Mr Cerda said. As a result, the biggest, Latam, as well as Colombia’s Avianca and Aeroméxico, have all filed for Chapter 11 protection from creditors and face painful restructurings that will slash their capacity.
“With Chapter 11, you typically gain operating efficiencies but your footprint shrinks significantly,” Mr Trent said.
Some have fared even worse: Latam’s Argentina operations, as well as TAME in Ecuador and Caribbean airline Liat, have ceased operations altogether.
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Compounding the industry’s problems, few Latin American carriers have had access to state aid during the pandemic, receiving just 1 per cent of the $130bn in government bailouts offered worldwide, said Mr Cerda, “and of that 1 per cent, only two countries stepped up — Brazil and Colombia”.
Brazil offered aid to Azul, which is still evaluating whether to accept. A Colombian bailout for Avianca has been held up in court after a member of the public filed a suit arguing that the company was in financial trouble even before the pandemic and it would be reckless to lend heavily to it now.
Declan Ryan, co-founder of Ryanair and executive chairman of low-cost carrier Viva Air Colombia, complained that his airline had been offered a loan scheme adding up to around $25m to $27m only, despite having a 20 per cent share of the market.
“We’re not disrespectful of that but it's about 7 per cent of what Avianca’s getting,” he told the Financial Times. “Do we feel pissed off? We do . . . I wouldn’t rule out us doing something on the legal front. It's not my style . . . but we're a very big foreign direct investment company and you have to treat your FDI companies fairly. This is anti-competitive. It makes Colombia look like a banana republic.”
In Argentina, Aerolíneas has received “a bit more state subsidy” during the pandemic but had still had to put fleet upgrades on hold, Mr Ceriani said.
Flybondi and JetSmart, two budget rivals, have warned they risk going out of business because of the country’s lockdown which has halted virtually all flights since mid-March.
“I don’t know if we’ll have winners,” Mr Ceriani said. “We will have survivors.”
Additional reporting by Bryan Harris in São Paulo
*This story has been amended since original publication to state that the debt will not have to be repaid until June 2021.
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