Friday, August 19, 2016

NEW AIRLINE PLANS: Avianca puts plans for new Argentina affiliate on hold

Avianca, which planned to start a low-cost Argentine affiliate before the end of 2016, has put those plans on hold until at least 2017 and is reportedly reconsidering the projected airline altogether.      

Avianca seemed to be well on its way to establishing an Argentine operation with the purchase of the small Argentine carrier Macair Jet, interviews with prospective staff and plans to initially place six ATR-72's in service, but the airline has encountered an operating environment in Argentina that it apparently doubts will allow it to successfully establish a low-cost carrier there.

Factors that Avianca perceives as roadblocks include:

* High airport taxes and excessive aeronautical infrastructure fees compared to other countries.

* The mandatory use of Intercargo, the state-owned airport ground handling operator, with its monopolistic fees and practices.

* An Argentine airline labor market characterized by high employee wage scales and low-productivity work rules as benchmarked by Aerolineas Argentinas, the market leader, which would likely lead to substantial resistance to the lower-wage, higher productivity work rules prevalent at low-cost carriers that Avianca would probably want to implement.

* Likely opposition from Aerolineas Argentinas' management and labor to a low-cost carrier in the Argentine domestic market, the only market where Aerolineas makes money (its regional South American flights are marginally profitable at best and its long-haul intercontinental routes are big losers).

* Likely resistance by the Argentine government to a free pricing environment where low-cost carriers typically drop fares to very low levels to stimulate travel and make money on a high-volume, thin-margin passenger traffic profile.  Such a pricing policy, without the  minimum airfare "bands" that exist now, would lead to even larger losses at Aerolineas Argentinas than the already massive deficits of recent years, which the government (and taxpayers) are no longer willing to tolerate.         
Avianca has not cancelled plans to start a low-cost carrier in Argentina and might still go ahead with the operation.  The coming months should give a better idea of what to expect.    


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