COPA

Fuel costs create uncertainty for continued profitability of Latin American carriers

Latin American carriers entered 2012 with mixed fortunes as two of its major players, Brazil’s Gol and TAM, posted losses for 2011 and started the year off reining in their capacity to bolster a yield recovery that started in 2H2011. A USD52 million loss at LAN’s Colombian subsidiary also pressured LAN’s overall profits as the group’s net income fell 24%. Both Copa and Aeromexico turned strong performances last year, and remain confident of continuing their positive momentum in 2012 as the economies of Panama and Mexico continue to grow. But similar to many previous occasions, fuel costs are ushering in a level of uncertainty surrounding Latin America this year.

Panama's Copa pursues more rapid expansion with Las Vegas, Curacao, Liberia and potentially Recife

Panama’s Copa Airlines is continuing its rapid expansion by opening at least three new routes in June, which will increase its hub of Americas operation at Panama City to a market leading 59 destinations. As is typically the case with Copa, the carrier is evenly distributing its network expansion in 2012 to different regions with Las Vegas in North America, Curacao in the Caribbean, Liberia in Central America and potentially Recife in South America being added. Again typical for Copa, all the routes are not currently served by any carrier and Copa will initially operate them with less than daily frequency.

New tax on transit passengers could lead to slower growth at Panama’s Tocumen Airport and Copa

Panama City Tocumen International Airport is planning to introduce in 2012 a transit tax that threatens to impact demand and slow down growth at the biggest hub for intra-Latin America travel. Copa Airlines, which relies heavily on transit traffic to generate one of the aviation industry’s highest profits margins, is fighting the planned tax along with IATA.

Transit passengers at Tocumen are currently exempt from paying departure tax, as is the case at airports throughout Latin America and the world. But government-owned Tocumen is planning to introduce a USD2.50 transit tax while raising the current USD40 departure tax to USD42.50.

While USD2.50 is a relatively small amount and would generate only about USD6 million per year, Copa and IATA are vehemently opposed to the concept of taxing transit traffic. The fear is the tax, if implemented, would increase over time, significantly impacting demand. Tocumen three years ago doubled the departure tax from USD20 to USD40, setting a precedent for a rapid rise in fees which could be repeated with the initially small transit tax.

US carriers continue to dominate Latin America's international market

Although financially weaker than their competitors to the south, US carriers continue to dominate Latin America’s international market. As a result, US airlines are well positioned to exploit the anticipated growth in the region. Complacency, however, is not an option. US carriers should seriously consider making strategic investments in Latin America’s leading airline groups to ensure their place in this important emerging market.

Latin America is a natural playground for US carriers given the geographic proximity and economic ties between the two regions. US carriers have traditionally accounted for a large majority of capacity between the US and Latin America. This has always been a sore topic for Latin American airlines, who over the years have repeatedly complained about an uneven playing field and how difficult it is to compete against their larger and aggressive competitors to the north.

UPDATE: oneworld favoured with more at stake than Star in LAN-TAM alliance decision

(this article, which was initially published on 24-Sep-2011, has been updated to include initial LAN response, further discussion of TDLC measures and implications for Gol and SkyTeam)

The stage is set for the biggest global alliance selection of the decade as new airline group LATAM is being forced by Chile's anti-trust court to choose a single grouping. The decision by LATAM, the new parent company for oneworld’s LAN and Star’s TAM, will have huge ramifications as the winning alliance will be guaranteed a leading position in the fast-growing and increasingly important Latin American market. The more likely outcome is a oneworld victory, which would result in its share of capacity in the region increasing to 30% compared to approximately 15% for Star and 11% for SkyTeam.

Avianca benefits in Colombia from restructuring at new LAN subsidiary Aires

Avianca has been the main beneficiary of the restructuring at Colombian-low cost carrier Aires, growing its share of the domestic market and improving its profitability since LAN acquired Aires late last year. Avianca also has benefitted from capacity reductions by the other two main players in Colombia’s domestic market, Copa Colombia and Satena.