Airlines operating in Latin America face numerous challenges during 2014 including a weak macroeconomic environment, a lack of pricing pressure, currency depreciation and soft revenues stemming from Brazil’s hosting of the FIFA World Cup.
A generally favourable outlook, with a potential disruptor in the wings. Two recent challenges disrupting the market for Latin American airlines are also creating headwinds for US airlines serving the region – payments trapped in Venezuela and weaker corporate demand during the FIFA World Cup tournament hosted by Brazil in Jun-2014.
It is no surprise that airlines have shown considerable interest in retailing given the contribution of ancillary revenues to profits in recent years. However to be truly innovative, airlines need to start behaving more like ‘smart’ retailers.
Weak representation within Latin America by low-cost carriers is likely to remain the norm for the foreseeable future given the region’s economy remains on tenuous ground as 2015 approaches.
While construction of terminals, runways and other infrastructure at existing airports in Latin America is at a lower level as measured by turnover than in any other region, there are a number of significant projects under way, some of them overtly linked to a second or third wave of privatisation activity across the continent.
As Latin America’s economic growth surge occurred, traffic between Europe and South America, as measured by RPKs, grew at an average rate of 7.9% annually between 2003 and 2013, compared with a world average rate of 6.2%.
The great distances between Asia and Latin America – and the still relatively small trade flows – have meant that dedicated services are difficult and relatively scarce.
In the truly global long-haul market, one fledging transit location in the Asia-Latin America market is Africa. In terms of scale this offers at best only long-term potential.
Accompanying the consolidation sweeping over Latin America during the last few years has been a significant shift in the dynamics of global alliance positioning in the region, driven by TAM’s move to oneworld in May-2014 following a four-year stint in the Star Alliance and its 2012 merger with LAN to create the LATAM Airlines Group.