The resilience of the aviation sector has never been so widely demonstrated than in Latin America. It was the only region in the world that didn’t receive any financial support during the pandemic, which could have destroyed its aviation industry.
Instead it was able to navigate the storm and come back fighting thanks to key industry players thinking outside of the box; helping countries to ease their Covid restrictions sooner than expected. The gamble paid off and the region is now reaping the benefits by becoming the biggest growth market.
In fact, in September it was the first region globally to reach pre-Covid passenger levels, even exceeded it by 1.2%, according to the Latin American and Caribbean Air Transport Association (ALTA).
It's a marvellous success story that involved ingenious efforts on the side of both governments and organisations like ALTA playing a major part in keeping the industry alive.
“Latin America and the Caribbean received zero funding so we had to do our homework,” said José Ricardo Botelho, executive director and CEO of ALTA.
“We went to the home of aviation, the International Civil Aviation Organization (ICAO) and worked with governments to change the regulatory framework within this unprecedented situation. We understood the limited budget to support all the industries, but then asked to work together to understand that, first, the industry was not the cause of the contagion and our countries needed to open borders to maintain an essential service and then to support the industry restart. Airlines and all the industry did a fantastic job that we all need to recognise, delivering essential cargo to every country and overcoming the toughest challenge in our history.”
And the resurgence was quick, especially in Mexico, Brazil and Dominican Republic. In fact, Mexico and Brazil never closed their air space. “Brazil was open but its main markets USA, Argentina and Europe were closed so it was impacted. Dominican Republic knew the tourism sector was important and started the vaccination process with people at the airports, hotels, taxis etc., that allowed the country to open. What we were seeing was Brazil, Mexico and Dominican Republic leading the process and then Colombia was joining.”
Colombia immediately felt the impact of the border closures as result of the pandemic due to the geography of the country.
“They knew that if you wanted to go from Medellin to Bogota, it would take about eight hours but only 40 minutes if you flew. We started to talk to the authorities to talk through their options and showed examples of what other countries were doing like in Mexico and Brazil to support Colombia. They opened up and the next thing we saw was passenger numbers going off the charts and now they are doing very well.”
ALTA’s latest report proves this. In September, the Dominican Republic, Mexico and Colombia continued to be the stand out countries in the region in terms of international passenger growth, reaching 124%, 114% and 113% respectively over the same month in 2019.
As for the domestic market, it recovered at a faster rate followed by regional and international markets.
“People started to realise they didn’t want to be at home but wanted to be around nature. They also felt safer travelling around their own country rather than going abroad. When international borders relaxed we then saw flights increase for example between Mexico and the US and Canada as people wanted to see their families. There are thousands of natural and cultural places in Latin America and the Caribbean which people want to come and visit – all of these factors contributed to why the region is outperforming others.”
Since the full restart in 2021, Caribbean Airlines has seen a strong performance but are not fully up to 2019 levels yet.
Nirmala Ramai, Chief Operations Officer, said: “This increase is largely driven by a return to normalcy with the relaxation of Covid-19 protocols at a country level and to the countries where Caribbean Airlines key markets are. Noting that some travel occasions can be handled virtually, there is no substitution for face-to-face interaction. In our case we have a blend of business, VFR, and leisure and those last two segments have been held back but now have the freedom to explore and see their loved ones again.”
We worked with governments to change the regulatory framework within this unprecedented situation - José Ricardo Botelho, ALTA
Key successes for Caribbean
For Caribbean Airlines, there was a need to reaffirm its commitment to customers. “We successfully launched our ReSet Expectation campaign which focused on re-engaging our customers with our products and services. We increased our NPS from 38 to 40 by Q2 2022,” continued Ramai. “We reintroduced the full business class service and entities; introduced a pre-order meal product selling authentic street food on board, Caribbean Café offering a blend of local snacks, drinks, and Caribbean branded items. Caribbean View was added elements for enhanced entertainment on board.
“We were also able to successfully refleet the airline with 09 B737-8 aircraft inducted this year, which gave added benefit to the customer experience and, of course, fuel savings and reduction of maintenance costs. 10 B737-NG aircraft were also redelivered to its lessors.
“We also launched our Jetpack Courier service and was able to gain 20,000 customers in the first three months of operation.”
Interestingly, while 2021 presented significant challenges with operational resources for Caribbean, in 2022 it was able to recall all its staff who were on furlough, pilots, cabin crew, ground operations and technical staff.
“Approved remote training added to getting staff recertified and we are currently navigating the challenges with SIM availability for the pilots. From a ground handling perspective, the Caribbean business was not impacted. The major challenges were with the North American vendors, which we were able to stabilise by Q2 2022 through a close and collaborative approach with the vendors,” explained Ramai.
Handlers
Latin America is very important to Swissport which has a growing presence in the region.
“It is a region which is in growth mode and will continue to be in growth mode for some time. We have made a conscious effort to expand our footprint in the region and have increased the number of airports served in the past 18 months by 50% through a combination of airport outsourcing opportunities as well as some acquisitions,” said Rene Pascua, Swissport’s Head and Managing Director for Latin America and the Caribbean.
In the Caribbean specifically Swissport acquired ground handler company ATS in Aruba and Bonaire.
“We strongly believe that our network is one of the biggest competitive advantages we have and being able to give our customers peace of mind about the service that they have come to expect is quite unique,” he continued.
The LATAM and Azul contracts were going very well, he stressed. “Both airlines continue to grow and we are happy to be part of that growth story and be able to support them. Opportunities are always being presented and we are always pursuing them continuously.”
Tomeu Mas, Senior Vice President for Central and South America, Menzies Aviation, said Latin America was certainly one of the busiest regions for Menzies.
“Firstly, we saw Mexico, our main market in the region, become one of the first countries to open its doors to tourism and relax Covid-19 measures which translated into a sharp increase of demand.
“This allowed airlines, mainly from North America, to divert capacity from the more restrictive countries to Mexico, something which Mexico has undoubtedly benefited from. Although the recovery was more gradual in Colombia, it has also experienced an increase in demand, mainly in the domestic market. Latin America is a key engine of growth for our business and with Agility’s acquisition of Menzies, we are now in a stronger position to accelerate our growth.”
They started in 2022 with two countries and have since established operations in seven. “We’ve completed 64 start-ups with 16 new customers in the region, increasing our number of turnarounds by 65%, tonnage also saw a sharp increase of 42% and the number of colleagues has increased by 35%.”
Mas said Menzies’ growth in Central and South America and Chile, Costa Rica, El Salvador, Guatemala and beyond, alongside their high customer retention rates, he said, were the highlights of the year.
“The multiple contract wins we have secured reaffirm our reputation in the market, and further emphasise that customers look for partners that understand their needs and will work to make sure that expectations are met.”
One of those wins was with Aeroméxico. “We are very grateful to Aeroméxico for the trust they have placed in us. It is undeniable that we have benefited from their outsourcing of ground services. These contracts have facilitated our growth in 19 airports throughout Mexico. Our strong relationship has led to five new contracts with Delta Air Lines in the region.”
For Menzies, 2022 was a year of accelerated growth, and their forecast for 2023 is that growth will stabilise in the ground handling markets where they already have a presence, as their cargo business starts to take off.
“Central America is a market where we see lots of potential; we already have a presence in several countries in the region and have observed market dynamics which demand reliable alternatives to the existing ground services offering. South America continues to be an area of interest, especially Chile, where we own 51% of the Menzies Agunsa business, which opens the doors to ground handling and cargo in the country. We expect to expand further in Colombia also, and we are looking at several other projects across Central and South America.”
dnata has always placed a very keen focus on Latin America as well and was particularly thankful to its three main Brazilian domestic airlines for starting the handler’s path to recovery in late 2020, which was very rapid in Brazil.
“The best thing about this was that we were able to bring our highly-trained team back to where they belonged, and to continue to help deliver the promises that our airline customers make to their own customers,” said Phil McGrane, Acting Chief Executive Officer, dnata Brazil.
Earlier this year, it also increased its investment to become sole shareholder of its Brazilian subsidiary, cementing even further its commitment to the continent.
“We are looking forward to there being a greater willingness to lead, pioneer, and really develop Latin America to become a serious global force to lead in aviation and really deliver to its full potential. Aviation has and will always have, a very important part to play in developing a country economically and also for its people. This same need is evident in many other countries in Latin America. With the advent of Ultra Low Cost Carriers (ULCCs), these needs are highlighted even more by connecting smaller cities and people. This is the opportunity.”
Pascua agrees: “We foresee more and more people flying as we see more airlines focused on low cost alternatives and we can see traditional airlines that were considered a legacy in the past having more economical alternatives to compete with, the new market entrants in the region, LCC or ULCC, which is going to be good for the industry overall.”
Real Aviation suffered from the impact of the Covid-19 pandemic like the rest of the industry. CEO Adriano Bruno told GHI: “Little by little, mainly with the return of domestic flights, and gradual return of international travel, we are resuming our activity in 16 operational bases in Brazil. Our expected increase of 30% in operations and revenue for 2022.”
Challenges
Despite the positive pace of recovery, the industry is still reeling from the economic fallout following the pandemic and now faces some serious economic global headwinds.
“Whilst we do expect recovery to continue it does hinge on factors such as the recovery of the global economy (recession) and any further supply side shock i.e. oil process and the Russia-Ukraine conflict. Looking at the current trajectory we believe recovery to the 2019 levels is more likely to be in H1 2024,” said Ramai.
“2023 will be a year of continued recuperation from the pandemic and the corresponding restrictions that the different countries have put in place,” said Pascua. “The key challenge is inflation. 2022 has seen a huge increase in labour, fuel inflation which of course puts significant pressures everywhere but we are actively working with our airline customers. We are monitoring the recessionary headwinds how this could also impact flight volumes and the industry as a whole.”
Mas agrees: “One of the largest challenges we face is rising inflation, as we expect it to hit double digits in 2023. This poses another hurdle to overcome during negotiations with airlines as we target contractual increases in line with the full value of inflation. High inflation will also require us to be more efficient in order to protect our margins. Another well-known problem continues to be the supply of ground equipment, with lead times now often at six months and above. The labour market in tourist hotspots around Mexico continues to be a challenge, but our recruitment and retention policies seem to be paying off seeing this become less of an issue.”
The lack of manpower in the Brazilian civilian aviation sector including the handling sector is still an issue. Bruno added: “Due to the high interest rates, the sector is having difficulty in obtaining long-term financing for investments.” However he is positive about next year. “Our expectations are the best possible. We have been diversifying our services with the opening of new fronts, so as to be able to deliver increasingly personalized services to clients. Moreover, with the recent privatization of airports, the Brazilian market is a growing market, which will demand more and more handling services.”
From ALTA’s perspective, Botelho, said: “The feeling is that Covid is behind us because of the vaccinations, however we cannot forget we didn’t receive any financial aid and the industry still needs time to breathe. We are facing big problems in Latin America with inflation and taxation.”
ALTA is currently working with the Colombian government to rethink taking back its VAT from 5% to 19% - a measure it decreased to help airline coffers during the pandemic. “If you want to bring in more flights, let’s consider what is reasonable,” explained Botelho. “We’ve been talking to the government to make them see what’s going on. In a country with only 45 million people it has more LCC airlines than Brazil, which has more than 200 million people, so you want to capitalise on that opportunity.”
The other huge issue is the soaring price of fuel. “This is a tremendous problem in Latin America. For one airline 47% of their cost is related to fuel, sometimes reaching 55%, which is a huge problem for the customer. But our strong message to governments is to remember that the ticket of one airline is the main entrance to a country. If you add taxes for the airlines, the cost will be transferred to the ticket and it will stop people coming to the country,” said Botelho.
A further challenge for the governments around Latin America is realising the huge potential of tourism to their own GDP and making a real effort to develop that, said McGrane.
“For example, in 2019 according to The World Bank (IBRD-IDA), France had over 190 million international tourism arrivals. In comparison, the countries of South America as a total combined had just over 23 million tourism arrivals. There is so much potential and opportunity, and what a real difference this could make to such a massive continent,” he explained.
Menzies says their ongoing growth in Central and South America and Chile, Costa Rica, El Salvador, Guatemala and beyond alongside their high customer retention rates are the highlights of the year. “The multiple contract wins we have secured reaffirm our reputation in the market, and further emphasise that customers look for partners that understand their needs and will work to make sure that expectations are met.
“Menzies sees growth potential in Central and South America while in Europe and the US, the average person travels onboard an aircraft around 2.5 times a year, in Latin America this figure is only 0.6. Bearing in mind the geography and lack of connectivity, Latin America offers great opportunity for the industry to grow. In the coming years, we believe this potential will see big players enter the region, either through acquisitions or tenders, which will lead to a process of market consolidation.
“However, the social, economic, and political stability of countries in Latin America, are dependent on internal and external factors that must be continuously monitored. In some of the countries the balance is particularly delicate and is likely to impact the growth of the aviation market,” said Mas.
