In its June 25th coronavirus update report by Becca Rowland, OAG Aviation World-wide points out that while aviation is “reeling” around the world, South America’s carriers are not receiving the significant government support that North America and Europe have seen for airlines.
This will be an important factor in how the industry on these continents will emerge from the pandemic, says the air travel data provider. And while the “lack of subsidy will speed some airline failures,” it could also provide an opportunity for new entrants with business models better suited to the new operating environment, it says. OAG argues that many of the barriers to entry for new airlines will be lower than they have been for some time.
Capacity plunges
OAG reports: “Since the first week of April, scheduled flights to and from the ten largest country markets in South America have been down by between 80% and 90% year-over-year… Argentina, Colombia and Peru have less than 3% of the operations there were a year ago, with aviation virtually at a standstill; Brazil and Chile are a little better at 20% of former capacity; and Bolivia and Venezuela have limited the impact to under 50% but these are ‘significantly smaller markets.’”
Airline failures
Airline activity has dropped in the region even though domestic capacity – which is expected to assist the U.S. and China to begin recovering sooner — accounted for 80% of all airline seats in 2019 across these 10 South American countries.
The situation is exacerbated by the airline failures in Latin America, says OAG.
Recently major regional carriers LATAM and Avianca entered bankruptcy protection; in Ecuador, TAME ceased trading in May when the government decided to liquidate the airline.
OAG reports that these three airlines contributed 43% of all scheduled capacity across these 10 countries in 2019. In Brazil they have accounted for a third of all capacity; and in Columbia, Chile and Peru they operated three in every five seats or more.
If the three airlines fail to emerge from bankruptcy protection it will leave a significant hole in South American aviation, says OAG.
OAG says that these failures could provide opportunities for new airlines. From idle aircraft and the availability of downsized but qualified crew, to the low price of fuel, barriers to entry for a new airline are lower than they have been in many years.
Additionally, OAG says passenger growth pre-COVID indicates there is more potential for air services than was provided up until the current crisis.
