AT A GLANCE
- Latin America is returning to the path of growth based on important economic reforms in the largest countries of the region.
- Challenges on infrastructure and regulations are driving many actions that support traffic growth.
- Airlines’ profitability is still fragile, right-sizing remains a strategic option for providing better margins and enhanced connectivity.
After a period of instability, some of the largest economies in the region are promoting structural reforms, which are bringing more confidence to the region for a new period of growth. Brazil and Argentina are good examples of these countries, promoting labor and pension reforms, respectively.
Based on these recent activities and other coming changes, the IHS Markit forecasts that the region’s GDP will grow around 1.6% in 2018. Over the medium term, growth is expected to remain subdued at 3.2%.
PERSISTENT TRAFFIC GROWTH
Even with an unstable scenario as presented in previous years, traffic is continually increasing in the region. For 2017, Latin American airlines posted a growth of 7%. This growth retake corresponds with general economic improvements.
The traffic growth adds even more pressure over an already congested infrastructure. Governments are beginning to address the issue as a matter of high priority.
LATIN AMERICA Source: Sabre, Embraer – December 2017
In Brazil, where 10 airport contracts have already been granted to private companies in recent years, the government is considering more than a dozen airport operations into new concession agreements, which will allow new and very welcome investments into the system.
In Colombia, the modernization of transportation infrastructure is one of the main targets of the Federal Government, which is investing billions of dollars to reform and build new terminals in 97 airports, all over the country.
A CALL FOR REGULATORY REDESIGN
One of the largest bottlenecks of aviation in the region is regulation, which is gently undergoing meaningful change. Argentina’s government, for instance, has approved changes to its regulatory framework, granting routes and operations to new carriers. Since then, the country has already received applications for hundreds of domestic and international routes from a dozen airlines.
Although the Regional Aviation Development Program in Brazil is stalled, important actions are promoting the maturation of Brazil’s aviation market. The Congress and Federal Government are pointing to a gradual end to limits on foreign investment in local airlines. This action can allow relief in the level of competitiveness in the region, improving connectivity as well as the level of service in the long-term. “Open Sky” deals are also taking place in the Congressional agenda, following on from the recent approval of the agreement between Brazil and the USA.
BRAZIL SERVICE PROFILE & “RIGHT-SIZING”
Nowadays, more than 70% of the Brazilian commercial transportation system is composed by low/mid-density markets (up to 400 pax/day), which are served in the main, by fewer than one frequency per day. In the future, we can expect a similar outlook as mid-density markets have increased their share year-by-year previously. To provide a proper service in such a market, a right-sized aircraft is proven to be the best solution.
BRAZIL SERVICE PROFILESource: Sabre, Embraer – March 2018
Latin America has many of the essential elements to build an even better future in its aviation story: modern and efficient airlines, great demographics and geographical characteristics and a growing middle class. Combining these elements with the right balance between infrastructure, a modern regulation and a right-sized fleet can unlock the huge potential of the region, allowing it to become better served, and a profitable environment for airlines.