Strategy for Profitable Growth in Latin America

The International Air Transport Association (IATA) announced an industry strategy for profitable growth in Latin American aviation. “Profitable growth requires that all aviation stakeholders in Latin America—airlines, airports and infrastructure providers— work with a common vision to achieve our priorities: safety, security, cost reduction, environmental responsibility and liberalization,” said Giovanni Bisignani, IATA’s Director General and CEO in the opening address of the Wings of Change conference in Santiago, Chile.

“We must build on success. In the past decade the Latin American industry has been transformed. Today, the region’s financial results stand out as positive—delivering US$800 million of profit in both 2009 and 2010. This is a remarkable achievement amid one of the biggest crises that the air transport industry has ever faced. But the success of the Latin American industry is based on the leadership of a few countries. Our strategy is to build a solid foundation for future profitable growth by spreading this success more broadly across the region,” said Bisignani.

Latin America was the only region to deliver a profit in 2009. This year’s expected regional profit of US$800 million is second only to the US$900 million profit expected to be realized by Asia-Pacific carriers. Traffic demand in the region was flat in 2009 but is now forecast to grow by 12.2% in 2010. This outstrips the industry global performance of -5.2% in 2009 and +7.3% expected for 2010.

Bisignani outlined specific recommendations on priorities for Latin American aviation:

Safety: Latin America aviation had no accidents involving western-built jet aircraft in 2009 which is an enormous improvement from the 2.6 accidents per million flights recorded in 2008. “Safety is a constant challenge for all industry partners. All IATA members are on the registry of the IATA Operational Safety Audit (IOSA). Thirty-five Latin American carriers are on the registry (including all 25 IATA members). Five governments in the region—Brazil, Chile, Costa Rica, Mexico and Panama—have mandated IOSA in their laws. I encourage governments through LACAC to make Latin America the first region where both of IATA’s flagship audits—IOSA and the IATA Safety Audit for Ground Operations—are a mandated standard requirement,” said Bisignani.

Security: “The Christmas day attempted terrorist attack was a wake-up call that security remains an issue for the industry and for governments. In January, IATA started a high-level dialogue with the US Department of Homeland Security. The goal was to facilitate the development of terrorism countermeasures while taking full advantage of industry expertise. “We must also avoid one-size-fits all solutions. Tomorrow we will hold a follow-up meeting in Santiago focused on Latin American issues,” said Bisignani. IATA is already active in Latin American on security issues. In 2009, IATA worked closely with governments and the airports in Bogota and Lima to improve security and reduce wait times. “This year we will work with Caracas, Sao Paulo and San Jose. But the challenge is to replace this airport-by-airport approach with regional partnerships that spread best practices,” Bisignani said.

Charges and Taxation: The Caribbean and Nicaragua recently proposed new tourism taxes. Chile, Ecuador, Uruguay and Mexico already contravene the Chicago Convention by taxing international fuel uplift. “Instead of partnerships to keep costs down, there is a contagion of rising taxes and charges. We need a reality check. This is a price sensitive business operating on razor-thin margins. Governments can change with transparency. We must keep costs low and follow ICAO guidelines,” Bisignani said. A 1% increase in travel costs drives away 1% of travelers. Increased charges and taxes put at risk the 700,000 jobs and US$22 billion in economic activity that aviation supports in Latin America.

Environment: Latin America will take a leading role in the global response to climate change as Mexico hosts COP-16 at the end of the year. The aviation industry (airlines, airports, air navigation service providers and manufacturers) remains committed to stabilizing emissions with carbon neutral growth from 2020 and cutting emissions in half by 2050 compared to 2005. “We can be proud of having targets that are ahead of the regulators. But as we head towards COP-16, I hope that Latin America can help lead the way in two critical areas. The first is improving infrastructure to ensure that our operations are as efficient as possible. That means resolving importing outstanding issues such as the joint use of military air space. The region is also in a unique position to help build consensus between the developed and the developing world on a global sectoral approach for aviation,” said Bisignani.

Liberalization: “The Latin American industry has led the way with the development of cross border brands which have become some of the region’s strongest players. Now governments must catch-up by liberalizing the bilateral systems’ archaic restrictions on ownership and market access,” said Bisignani. In November last year, IATA’s Agenda for Freedom initiative facilitated a multinational statement of policy principles on liberalizing ownership, pricing and market access. Chile and Panama were among the governments that signed the principles, which also included Malaysia, Singapore, Switzerland, the United Arab Emirates and the United States of America. Since then, Bahrain, Lebanon and Kuwait have joined. “The principles are open for any country to sign. I urge all governments in Latin America to use the principles as a blueprint for building an even stronger industry,” said Bisignani.