November 26, 2012
Credit: Boeing image
Latin America should be one of the world's aviation bright spots. The region's air traffic is projected to grow by 6% annually for the next 20 years as carriers capitalize on a middle class that could double in size during that period. Boeing and Airbus say that will translate into a need for more than 2,000 new aircraft by 2031.
So what could ruin the party? Try poor infrastructure, misguided regulation and a troubling tendency by governments to divert landing fees and other revenues to pay for non-aviation projects. “There is not enough airport capacity to handle the growth,” says Roberto Kriete, chairman of AviancaTACA and president of the Latin American and Caribbean Air Transport Association, at the group's annual meeting in Panama earlier this month. He cites the new terminal at Bogota's El Dorado International Airport as an example of poor infrastructure planning. “The airport in Bogota is beautiful—it's a dream,” he says. “But it's too small and has the same number of gates as the old airport.”
In Brazil, the government last year privatized three airports, Guarulhos, Viracopos and Brasilia, by auctioning the operating concession to the highest bidder. This generated $14 billion for the national treasury, but did little to ensure that the concessions were sold to the most capable operators. To recoup their hefty investments, the operators are raising landing and other fees to levels that threaten to choke off airline growth. “The concessions should have been auctioned to the operators with the lowest fees,” says Marco Antonio Bologna, CEO of TAM Airlines. “We had hoped to see the return of some of these revenues to the airports.”
The region's airlines also are deeply concerned about revenue diversion. Mexico recently raised air traffic control fees by 13%, while Brazil increased them by an eye-opening 150% earlier this year. This hike equates to a $220 million levy on Brazilian airlines. There is no indication that such fee increases are being invested in aviation infrastructure. Latin American airlines have some of the youngest fleets in the industry, but lack of government investment in satellite-based navigation systems means carriers are not able to exploit the advanced equipment on these aircraft.
Government meddling also distorts the market. Uruguay alleges that Argentina's protectionist treatment of state-owned Aerolineas Argentinas led to the recent demise of Pluna, a Uruguayan carrier. And the Mexican government seems hell- bent on resurrecting Mexicana de Aviacion, which has been grounded in bankruptcy protection for two years while other airlines have largely filled the gap.
Carriers have been allowed to consolidate across borders, so there are now four dominant airline companies in the region: Panama's Copa Airlines, Colombian-Salvadoran AviancaTACA, Aeromexico and Chilean-Brazilian Latam. That is a solid foundation for growth and prosperity. Now if governments would just get out of the way.