Latin America’s aviation landscape

Despite overcoming and continuing to face numerous challenges, there are many opportunities on the horizon of the Latin America and Caribbean aviation landscape. From facilitating the development, safety and security of air transportation throughout the region, to ensuring better communication and collaboration among its members, their customers and the industry as a whole, ALTA (the Latin American Air Transport Association) continues assisting its membership in making great strides in the advancement of the region’s air transportation efforts.

ALTA has had several key accomplishments over the past three years. In addition to expanding its support base from 17 to 33 member airlines, ALTA reinforced its commitment to the highest standards of safety. In 2005, the association announced that all member airlines would be required to commit to an IATA Operational Safety Audit (IOSA) by the end of 2006 and to have successfully completed the audit by the end of 2007. This initiative is progressing well and the IOSA mandate continues to be an integral part of ALTA’s membership requirements, and is key to the association’s efforts in working together with the airlines in providing the safest possible Latin America and Caribbean airline industry. Another milestone was achieved last year when ALTA’s campaign to create opportunities for member airline efficiencies surpassed $50 million in savings to member airlines in various operational areas such as fuel, airports, distribution and operations.

The competitive air transport environment has had a positive impact throughout the region. Latin America is experiencing a high level of new low cost carrier activity, specifically in Brazil and Mexico, which is impacting the region. Carriers such as Volaris, Interjet, Avolar, ALMA, Click, Vivaaerobus, Webjet, BRA and GOL have started operations in the last five years. Overall, this has had a positive impact both on the industry and for consumers. It has required all of the airlines to become more efficient in their operations and the competition has led to more choices for consumers. ALTA is proud to be the airline association that includes both traditional and low cost carriers, passenger and cargo carriers, as well as trunk and regional airlines. All of them ultimately want a safer and more efficient industry, and through ALTA, all of them are working together to achieve these objectives.

As the traffic keeps growing in the region at double digit growth over the last few years, the need for improved airport infrastructures will continue to be a key factor to the Latin American and Caribbean’s air transport success. There have already been significant investments in the region’s airport infrastructure over the last decade with Argentina, Mexico, Brazil, Chile, Peru, Panama, Dominican Republic, Jamaica, Curacao and Nicaragua as just a few examples. As air transport becomes one of the largest growing industries in the region, the need for new and improved installations remains a must. As economies and interregional trade grows, so does tourism, business travel, and exports and imports of goods.

During the last ten years, governments unable to invest in infrastructure have chosen to commercialise or privatise airports as a new trend fomented by the World Bank. Today over 100 airports have been privatised in the region. As air travel becomes more attractive to the general public, airports need upgrading and revamping in order to cope with the new security measures and commercial needs. Airports become the first image for tourists and businessmen arriving to a country.

Following is a summary of some of the current airport operations throughout the region. According to OAG data in 2006, the Mexico City International Airport was both the biggest and the fastest growing in the region with 13,248 frequencies in June 2006, 1,326 more over June 2005.

INFRAERO, the Brazilian state-owned airport operator is the largest entity with 66 airports in the country that tend to over 306 million passengers a year. In 2006, they reported over 2 million take-off and landings and handled 1.2 Billion tons of cargo. Guarulhos International Airport in Sao Paulo is the largest airport in the region handling 15.7 million passengers and 419 million tons of cargo in 2006. It also generates over 53,000 direct and indirect employments.

In Chile, Arturo Merino Benitez International Airport has become one of the most popular airports in Latin America, winning several awards, including ALTA’s 2005 Rolim Amaro Award. Its brand new infrastructure, including a second runway, has a capacity of handling 12 million passengers a year, and has one of the most up to date cargo facilities in the region. Terminal Aereo de Santiago (SCL) is the private consortium that manages the airport for an initial period of 15 years, which began in January 1999, when the Civil Aviation Authority (DGAC) transferred the administration of the terminal building. The success of LAN, the airline group based in Santiago, has also helped in the development and growth of the airport.

Lima Airport Partners received the old structure of the Jorge Chavez International Airport in Lima in order to build a world class airport in the first stage of their concession contract. Lima’s airport success is also linked to the accomplishments of the hub systems structured by TACA Peru and LAN Peru, the country’s dominant airlines.

Benito Juarez International Airport in Mexico City is undergoing major construction, including a new terminal building that is scheduled to be completed by 2008. These new additions will nearly double the capacity of the airport for both the growing passenger traffic, as well as increased cargo levels, with the commitment of the new government.

Argentina has also seen investments, especially at the two airports serving the city of Buenos Aires. However, the concession contract has been one of the most controversial of the year. A single consortium, AA2000, was awarded the administration and development of 33 airports in the country.

Panama has adopted a different model, and a government-owned autonomous entity has been created to manage and develop Tocumen International Airport. Once again, the success of COPA Airlines’ “Hub of the Americas” is partly due to the firm determination of the Panamanian government to develop and upgrade the international airport. This airport won ALTA’s Rolim Amaro Award of Excellence in 2006.

In Ecuador, a brand new airport, an investment of $586 million, is being built in Tabalela, a few miles outside of Quito to replace Mariscal Sucre International Airport.

In Colombia, the concession of Eldorado International Airport in Bogota was granted this year to a consortium, OPAIN, where Zurich Airport is the operator. This is a unique case where the construction of the second runway and the operations of the two runways at the airport were granted to another concessionaire, CODAD, some years ago. It will be very interesting to monitor the operation of two concessionaires with different interests at the same airport.

Another growing regional trend is the globalisation of airport groups. AA2000 of Argentina also has stakes in Uruguay and Ecuador. The Bechtel Group, through its subsidiary Alterra, has stakes in Peru, Costa Rica and Curacao. Vancouver Airports has interests in Chile, Jamaica and the Dominican Republic. AENA of Spain has stakes in Colombia, Mexico and Cuba. TBI from the UK has stakes in the three international airports in Bolivia.

Airlines operating in the region need and support the investment in airport infrastructures by governments or private entities. However, the airlines and their associations, ALTA, IATA and the local BARS, have been critical to point out that the privatisation process of airports in Latin America and the Caribbean has, for the most part, dramatically raised airport fees and charges without justification and against international agreements. It is unfortunate that the majority of the concession contracts do not take into consideration ICAO’s recommendations on cost allocation to set fees and taxes. Instead, contracts are open for the concessionaires to take advantage of their monopolistic services, create new fees and charges that are non-cost related.

Another challenge for the region lies in balancing the needs between airlines and airport concessionaires. The cost base used to calculate fees and charges to the airlines should be transparent and agreed upon by the parties. While the airline industry has lost over $40 billion since 2001 (according to IATA statistics), some airport entities aim for guaranteed profitability levels of over 15 percent at the expense of the airlines. These problems need to be addressed if we are going to have a healthy growing industry. The biggest challenge in the region is to ensure that governments stop seeing the airlines and airports as big cash cows to the national coffers. The large royalties paid by the concessionaires, in many cases over 50 percent, go straight to the State’s treasury and are not reinvested in the industry, creating a huge burden to both operators and carriers. These factors have been the trigger for several re-negotiation processes of the largest concession contracts in the region. Airlines and airports should work together to ensure a proper solution to a problem that has poisoned what should be a cooperative approach.

As ALTA continues to look toward the future of the region’s air transportation, it will continue to play a leading role in the region to ensure the safest and most efficient Latin American and Caribbean industry. The association will continue working together with its members to address various areas, including safety and security issues, government and regulatory issues, operational and technical issues, and efficiencies and economies of scale opportunities. Numerous growth opportunities continue for the region, despite the difficult and challenging environment facing the industry. Cost efficiencies will remain a priority and ALTA will continue its relentless search for synergies and economies of scale. ALTA will continue to encourage airport operators and their associations (ACI and ACI- LAC) to engage in a positive dialogue to ensure that everyone is ready for the growth opportunities and challenges that lay ahead.