Game-changing relaunch: Airlines join forces to revolutionize Latin American skies!

Latin American aviation is charting a path to health despite the lack of direct government aid in the Covid-19 crisis, with a battle for the skies heating up thanks to mergers and expansion plans.

On the brink of collapse when flights were grounded during the pandemic, three of the region’s biggest airlines – Chili Latam, Avianca de Colombia and Aeroméxico – have all exited US bankruptcy protection in the past 18 months. .

Others, such as Brazilian carriers Gol and Azul, have reached agreements with creditors to reduce debts and financial obligations to more manageable levels.

As passenger numbers rebound, growth is once again the focus. Dominant players in the sector have embarked on corporate consolidations and launched new paths, with investors pouring in billions of dollars to help the recovery.

This spirit is embodied by the newly created Abra Group, a pan-Latin holding company bringing together Avianca and Gol under common ownership. It will challenge Latam, the regional market leader in terms of the size of its fleet and itself the result of a merger more than ten years ago.

While the two brands should remain independent with separate managements, Abra says this will lead to cost savings and greater economies of scale, while increasing revenues and investments.

“You have seen the consolidation in the United States and in Europe. Players like Lufthansa and Air France-KLM now really dominate the region, with low-cost rivals keeping them honest,” said Adrian Neuhauser, chief executive of Avianca. “You have very little of the old single-market airline. And we think the same thing is starting to happen in Latin America.

Abra’s ambitions suffered a setback last month, however, when Avianca abandoned its acquisition of struggling Colombian compatriot Viva Air. He blamed the conditions imposed by regulators as unworkable.

Even so, analysts say it makes sense for such business ties, given the possibility of greater bargaining power over fuel and aircraft purchases.

Industry boosters also point to the potential of expand air travel in a region of 660 million inhabitants but with a relatively low number of flights per inhabitant. The mediocrity of road and rail infrastructure makes the plane essential for transport between many territories.

“There is land grabbing – or air, if you prefer – in Latin America generally now between different carriers,” said Cirium analyst Mike Arnot. “Every player sees opportunities to add capacity.”

Throughout 2022, the region ranked first in the world for passenger recovery and is now virtually back to pre-pandemic rates, according to the Latin American and Caribbean Air Transport Association.

Its leader, José Ricardo Botelho, said one factor was ‘revenge tourism’ – holidaymakers seeking to get away from it all after the social distancing lockdown. The European groups Air France-KLM and Lufthansa have recently recorded fine performances in South America.

However, across the region, the picture is mixed, according to data from the industry body. Mexico has now overtaken Brazil as the largest market, with a 17% increase in passenger numbers in the first quarter compared to the same period in 2019. Colombia was also higher, but Brazil, Argentina , Chile and Peru were all below the level of four years ago. .

For Latin America’s biggest carriers, this translates into improved financial results, with revenues and profits rising, even though many stock prices have yet to rebound from steep falls.

Despite reduced losses, the industry as a whole in Latin America will remain in the red in 2023, according to the International Air Transport Association, although it said some airlines will post “strong profits”.

Unlike Europe and North America, what stands out is the lack of targeted financial assistance from the state in the depths of Covid-19. (An exception was Aerolíneas Argentinas, although it was already state-owned.)

“Latin American airlines had to be warriors to survive,” Botelho said. “They had to reinvent themselves to become even more efficient.”

As a sign of confidence, Aeroméxico has spoken of returning to public markets. Abra said it was planning an initial public offering and Latam suggested it would seek to relist its American certificates of deposit on the New York Stock Exchange, after they were suspended during its bankruptcy process.

However, recovery is not at all levels. At least 10 Latin lines – mostly economy brands – have gone out of business since 2020, including four this year.

Some have battled traditional competitors who have adopted a “hybrid model” of cheap tickets and charging for extras such as baggage and airport check-in.

Yet low-cost providers are also among those that have fared the best in Latin America since the onset of Covid-19. According to data from Cirium, the category has increased its share of industry capacity – measured by available seat miles – by around 30 to 42%.

One company missing from the consolidation is Azul, which made an unsuccessful bid to take over bigger rival Latam in 2021.

Chief executive John Rodgerson said he no longer has any merger and acquisition plans and is instead focused on adding new sites to his network, which will grow from 119 cities in 2019 to 170 by the end of the year. His itineraries include Fort Lauderdale and the capital of the Amazon jungle, Manaus.

“It’s exciting – there’s a demand for all these remote cities in Brazil,” he added. “The biggest opportunity is to continue to develop the domestic market.”

Commercial partnerships with American counterparts, with a view to boosting flights across continents, are another option apart from the planned mergers.

American Airlines invested $200 million for a 5% stake in Gol last year, with the pair to pursue a codeshare deal (under which the airlines sell seats on each other’s flights) .

Delta has a joint venture with Latam and was among shareholders who provided funds for a $5.4 billion cash injection as part of a restructuring last year. The Chilean company said it was “strengthened and more competitive” than before Covid.

Yet despite the industry’s enthusiasm, weakening currencies in several Latin countries have made the rising cost of fuel – in dollars – even more expensive in local terms, driving up ticket prices.

With an economic slowdown predicted in 2023, air travel could remain a unaffordable luxury for the millions forced out of the region’s middle class by the pandemic.