The aviation environment in Latin America has witnessed the rapid expansion of low-cost carriers.
FREMONT, CA: More than half of the Western Hemisphere's population resides in Latin America and the Caribbean. The terrain is diverse and difficult for road travel in the Caribbean, Colombia, Chile, and Peru, whether islands, mountains, or deserts. There is no development of rail networks beyond what is required for mining operations in the regions. This situation necessitates viable airlines to transport goods and people throughout the region and the world. Historically, Latin American airlines have been expensive, with local networks but limited global reach. U.S. airlines, such as American and Delta, have taken advantage of this by serving a large portion of their traffic through Miami and Atlanta.
All of this is changing due to the rapid growth of low-cost carriers, the closure of the most inefficient companies, and the use of bankruptcy restructuring to make even the most expensive airlines significantly more efficient. In addition, local connections between airlines and alignment with global alliance groups have propelled Latin American aviation into the big leagues.
Stay ahead of the industry with exclusive feature stories on the top companies, expert insights and the latest news delivered straight to your inbox. Subscribe today.
Development of Low-Cost Carriers
Like the rest of the world, Latin America has benefited from the rapid expansion of low-cost airlines. For instance, Volaris now dominates Mexico, previously dominated by two expensive and high-priced airlines, Mexicana and AeroMexico. This airline adheres to the same principles as RyanAir and Spirit in the United States. As a result, travel within Mexico and between the United States and Mexico has increased. This has occurred in Colombia with Viva, Chile with Sky and JetSmart, and Brazil with Azul, just a few of the low-cost airlines that have emerged in the last 15 years. As in the United States and Europe, this growth has made travel accessible to more people and has put pressure on the region's existing "legacy" airlines.
Influence of Insolvency Restructuring
Post-9/11 traffic declines compelled the majority of U.S. airlines, with the notable exception of Southwest, to seek bankruptcy protection. These reorganizations modified debt levels and terms, resolved fleet inefficiency issues, and shifted retiree expenses from defined benefits to defined contribution plans. This resulted in a wave of mergers that merged eight large airlines into four mega-airlines and positioned the industry for unprecedented growth and financial stability until the pandemic struck.
This evolution was not prompted by the September 11 attacks but was compelled by the pandemic. For example, the LATAM Group, Avianca, and Aeromexico, the three largest airlines in the region, all filed for bankruptcy protection. U.S. law permits this because both parties own property and conduct business in the United States. They have or are in the process of rethinking their business models, shedding personnel, and reducing other expenses to emerge with stronger balance sheets. These newly acquired efficiencies make them more competitive with the new low-cost airlines and their larger U.S. and European competitors.
Rising Standards and High Potential for Growth
The aviation industry in Latin America is projected to grow by 5 percent annually, making it one of the fastest-growing regions in the world. However, much new aviation activity is generated in Latin America. With the combination of two truly global, pan-regional networks and the rapid expansion of low-cost airlines throughout the region, the demand for aircraft, crews, and all related support services is substantial.
Numerous economies in this region are also expanding rapidly. The cliched narratives of dictators and drug production have their justifications, but they do not encompass the entire area. Tourism in the Caribbean, Mexico and numerous Latin American nations continues to expand. Complex and diverse economies in Chile, Colombia, and Brazil create growth opportunities for business travel. This is an exciting region with excellent airlines serving not only the domestic market but also international markets. Since catching up to U.S. airlines in terms of operating efficiency and having a well-defined labor cost advantage, this aviation industry is formidable and will continue to surprise people.
