Differential pricing and changes in flight frequency hit Aerolíneas Argentinas and Latam above all, while favouring Flybondi and JetSmart. Benefits for Avianca too.
The low-cost “aviation revolution” promoted by the government has had its impact on state-owned carrier Aerolíneas Argentinas.
In recent years, the stateowned flag carrier has lost its share of the growing domestic flight market, while still increasing its number of passengers by 17.8 percent between 2016 and 2018.
Aerolíneas is no longer the leader in international flights, having been overtaken by Chilean airline Latam and losing 3.3 percent of the persons it has transported on such flights over the last three years. And as from this year it will no longer be able to run regional transfers out of Aeroparque Jorge Newbery in Buenos Aires City, confronted by competition for the international flights now starting up in the low-cost airport of El Palomar.
It is, however, not the only airline affected. Market sources point out that the new regulations of the Transport Ministry, headed by Guillermo Dietrich, mainly benefit the new players in the local aviation market: local airline Flybondi (registered as a British company), Chile’s Jet S m a r t a n d C o l o m b i a’s Avianca, which has just changed hands from the Bolivian Germán Efromovich to El Salvador’s Roberto Kriete, who owns TACA. APLA pilots’ union chief Pablo Miró cites these three airlines, adding Norwegian, although for other reasons.
As from last April 1, Argentina’s civil aviation regulatory agency (ANAC, in its Spanish acronym) has banned all flights out of Aeroparque to neighbouring countries except for Uruguay. For Aerolíneas, which used to operate half the regional flights out of Buenos Aires, flying out of Ezeiza implies greater costs for business passengers and daytrippers, thus lowering demand. But the nation’s flagship carrier denies any damage: “This does not hurt Aerolíneas but those passengers who have to go to Ezeiza.”
Aerolíneas thus had to move its flights to Brazil, Bolivia, Chile, Colombia, Paraguay and Peru from Aeroparque. The same applies for regional flights operated by Chile’s Latam, Brazil’s Gol and Bolivia’s Amaszonas.
Official data from the first month with this measure in force, however, shows damage to the flagship carrier. According to ANAC, Aerolíneas flew 262,000 passengers to international destinations while in March, the last month of regional flights out of Aeroparque, there had been 302,000. The previous April there had been 300,000 passengers for a year-onyear fall of 13 percent, above the 11 percent average decline for international flights across the Argentine market. As compared to the same month in 2018, April this year also suffered the impact of the crisis but had the booster of including Easter week, which last year fell in March.
The beneficiaries of switching regional flights from Aeroparque to Ezeiza are those airlines already operating the same routes from the international airport in Buenos Aires province, such as Avianca (Bogotá and Lima) and out of El Palomar such as the low-cost Flybondi (to Asunción) and JetSmart (to Santiago).
“But nor do we benefit that much because the only regional flight we do out of El Palomar is the daily run to Asunción,” say 9 Flybondi officials in self-defence.
Low-cost advocates allege that JetSmart flights in Argentina, which began last December, were already flying f u l l - u p f r o m then on. Avianca had yet to reply when this article went to press.
The government cleared El Palomar airport for operating int e r n a t i o n a l flights late last year, offering to subsidise 60 percent of the airport fee of each p a s s e n g e r flying abroad,whereas at Ezeiza (where there is no discount) this is around US$50. Thus an Aerolíneas flight to Asunción out of Ezeiza can cost 8,900 pesos, of which 2,500 corresponds to this fee for flying abroad. Meanwhile, flying to Paraguay from El Palomar with Flybondi totals 2,500 pesos with this fee only accounting for 900 – travelling with Aerolíneas thus represents 277 percent more in terms of the fee.
Flybondi and Aerolíneas both maintain that other low-cost a i r p o r t s a c r o s s t h e w o r l d a r e c h e a p e r . Others pro - mot i ng t h i s business model argue that the f lagship carrier could also operate out of El Palomar if it so wished.
A NEW ERA
Despite the move to Ezeiza, Latam – the airline which once had current Energy Secretary Gustavo Lopetegui as its CEO – is one of the big winners of the Dietrich model. It currently operates 25 percent of the international flights in this country, topping the 23 percent marketshare held by Aerolíneas. Three years ago they were running even on 27 percent. Within the continental niche, Latam pads out its advantage with 38 percent as against 25 percent for the local flag carrier.
In that context Aerolíneas ran a deficit of 21.8 billion pesos last year. The state airline’s spokespersons attributed this loss mainly to an increase in fuel prices. The flag carrier has been in the red and financed by subsidies ever since it was nationalised in 2008.
Argentina recently (on May 29) lost a case regarding the nationalisation of Aerolíneas Argentinas before the International Centre for Settlement of Investment Disputes (CIADI in its Spanish acronym). The state must now pay US$320 million to the Burford Capital investment fund, which took over the claim of Spain’s Marsans and is also suing this country over the Eskenazi group’s role in the expropriation of YPF.
“Throughout the Cambiemos administration, Aerolíneas has grown in both flight frequencies and ticket sales but well below the totals of the aviation market,” explains Gustavo Lipovich, who headed the Orsna airport regulatory agency in the Kirchnerite years.
“The operating deficit increased while state subsidies fell, thus leading to disinvestment and decapitalisation. The only planes added by Cambiemos had already been purchased by the previous administration and the rest were replaced,” he adds.
Aerolíneas also lost market share in domestic flights although the number of passengers soared by 39 percent between the first quarters of 2015 and 2019. In August 2016 (the oldest point of reference published by ANAC), the flag carrier controlled 71.2 percent of the domestic market while by last April it had descended to 67 percent, in large measure due to the low-cost surge. The other main slices of the cake go to Latam (12 percent), Flybondi (nine percent) and Norwegian (eight percent).
The flagship carrier’s evolution unfolds within a price war authorised by the government, which removed the floors for air fares and permitted dumping, i.e. operating below cost in the expectation of gaining some routes. In their defence the low-cost firms recall that JetSmart only sold 5,000 tickets for a peso when it first launched in Argentina in late 2018.
They also point out that they do not receive subsidies, unlike Aerolíneas. Given these subsidies, the government considers it absurd that the state carrier can complain of unfair competition from its low-cost rivals. Flybondi – whose recent HotSale also offered flights for a peso – argues that “the regulations are the same for everybody and
ANAC is pretty strict in their enforcement.” Norwegian reminds everybody that it never sold tickets at joke prices, in the main refusing to categorise itself as low-cost. ANAC chairman Tomás Insausti defends the goverrnment model: “The aviation revolution means that in 2018 we had 14 million domestic flight passengers and five airlines operating. Aerolíneas is losing less money than before. For three years now it has neither gone bankrupt nor been put up for sale, so that it seems nonsense to me to talk of asset-stripping when reality demonstrates the contrary.”
Aerolíneas recognises that its key focus for now lies in cost reduction to lower its deficit. The firm is seeking to save US$12 million in fuel and are renegotiating hotel, catering and advertising agency expenses with the aim of trimming a further US$110 million of its expenditure. But such measures can only be seen as an aspirin for treating a much more serious illness.
Nevertheless, the flag carrier highlights that the need for subsidies has been reduced from US$553 million in 2015 to US$198 million in 2018, slashing the debt from US$1.154 billion to US$499 million.