WORLD AVIATION Yearbook 2013

Transcription

WORLD AVIATION
Yearbook 2013
LATIN AMERICA
PROFILES
Latin America TOP 10 AIRLINES
SOURCE: CAPA - CENTRE FOR AVIATION AND INNOVATA | Week starting 31-MAR-2013
Ranking CARRIER NAME
Latin
America
Outlook
L
atin America has been a market
characterised over the last
decade by rapid growth,
consolidation and significantly improved
profitability. 2012 saw more healthy growth in every
major market and a key milestone with the completion
of the LAN-TAM merger, which puts about onethird of the region’s capacity in the hands of one very
powerful airline group ...
SEATS
1
VARIG-Gol Airlines/vrg
Linhas Aereas Sa
156,124
2
TAM Linhas Aereas
141,140
3
Lan Airlines
90,886
4
Azul Airlines
77,560
5
Avianca
57,786
6
Aeromexico
55,899
7
Copa Airlines
41,387
8
Interjet
31,500
9
Volaris
27,918
10
Aerolineas Argentinas
26,354
Latin America TOP 10 Airports
Ranking CARRIER NAME
SEATS
1
Sao Paulo Guarulhos International Airport
879,636
2
Mexico City Juarez International Airport
762,866
3
Bogota Eldorado International Airport
589,330
4
Sao Paulo Congonhas Airport
517,256
5
Rio De Janeiro-Galeão International Airport
442,544
6
Brasilia International Airport
432,410
7
Lima J Chavez International Airport
380,816
8
Cancun Airport
375,026
9
Rio De Janeiro Santos Dumont Airport
304,426
10
Belo Horizonte Tancredo Neves International
Airport
297,274
Latin America capacity SEATS per week
1,089,278
Gol
965,854
TAM Airlines
673,546
LAN Airlines
Azul
474,202
American Airlines
435,840
AVIANCA
402,806
Aeromexico
380,655
COPA
291,874
United Airlines
265,996
3,379,250
Other
0M
2 AIRLINE LEADER | MAR-APR 2012
1M
2M
3M
4M
Latin America fleet
Latin America projected delivery dates for aircraft on order
SOURCE: CAPA - CENTRE FOR AVIATION | Week starting 31-MAR-2013
100
2,500
75
1,983
2,000
50
1,500
25
1,000
In service
Latin America breakdown for aircraft in service
7.7%
8
9
20
1
20
1
767
A320
737
777
787
A330
A350
SSJ
Latin America most popular aircraft types in service
SOURCE: CAPA - CENTRE FOR AVIATION AND INNOVATA
0.2% 0.1%
13.1%
48.4%
Narrowbody Jet
22.0%
33.0%
A320
737
Small Commercial
Turboprop
ERJ170
Regional Jet
ATR
Turboprop
DC9
Widebody Jet
13.9%
Military Transport
Business Jet
767
19.9%
3.1%
3.6%
8.1%
6.5%
Latin America capacity SEATS share by alliance
CARAVAN
Others
3.7%
16.8%
11.6%
20
24
7
20
1
ATR
20
23
6
20
1
On order
20
22
5
20
1
ERJ170
In storage
20
21
4
20
1
136
0
20
20
3
500
20
1
0
635
IATA Latin America PREMIUM TRAFFIC: 2009-2013
SOURCE: CAPA - CENTRE FOR AVIATION AND IATA
60
0.7%
50
44.5%
Unaligned
Star
oneworld
SkyTeam
oneworld (affiliate)
Premium Traffic Growth%
40
14.8%
30
20
10
0
-10
-20
28.4%
-30
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
Jul-12
3
LCC CAPACITY SHARE (%) OF TOTAL SEATS: 2001-2013
Source: CAPA - Centre for Aviation with data provided by OAG
50
40.8% 41.5%
40
31.0%
30
43.3% 42.6% 43.3%
32.8%
28.3%
26.2%
29.9%
31.8% 31.6% 32.6%
21.7%
20
18.3%
14.2%
15.6%
10.6%
10
6.4%
5.7%
17.6%
7.2% 7.8%
14.3%
9.6%
3.2%
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 JanMar
Within Central & South America
Within lower South America
2013
Latin America traffic: 2008-2013
SOURCE: CAPA - CENTRE FOR AVIATION AND IATA
30
25
Revenue Passenger Kilometres %
20
15
10
5
0
-5
-10
-15
2008
2009
2010
2011
2012
2013
The establishment of new LAN and TAM
parent LATAM Airlines Group is the biggest
component of a massive consolidation
trend...
4
... The establishment of new LAN and TAM
parent LATAM Airlines Group is the biggest
component of a massive consolidation trend
which has also included the mergers of Avianca
and TACA, Gol and Webjet, and Azul and
TRIP. In addition, consolidation has come in
the form of casualties as several Latin American
carriers of all sizes have suspended operations
in recent years, with Uruguay flag carrier Pluna
and Bolivia’s largest carrier Aerosur joining
the list in 2012. The result of the consolidation
has been the emergence of a healthier industry
with the leading six airline groups accounting
for about 75% of total capacity among Latin
American carriers and having generally positive
outlooks for 2013 and beyond.
The success of cross-border models has
contributed to the consolidation and overall
profitability of Latin America’s aviation
industry. Unlike in Asia, where the cross-border
model has been used to accelerate low-cost
carrier growth, in Latin America the model has
been primarily used among full-service carriers.
LATAM and Avianca-TACA represent
the world’s best examples of successful crossborder models in the full-service carrier sector.
LATAM now includes passenger airline
subsidiaries in seven countries while AviancaTACA has passenger airline subsidiaries in
eight countries, plus a sister carrier in a ninth
country. 2013 will see further integration at
Avianca-TACA as all the carriers in the group
take on the Avianca brand, representing a
final step in a merger which was completed in
early 2011. LATAM, meanwhile, will continue
to pursue synergies made possible by the
completion of their merger in mid-2012.
The Viva Group, backed by Ryanair founders
Irelandia Aviation, has begun the first attempt
at testing out the cross-border model in Latin
America’s emerging LCC sector. VivaColombia
launched services in May-2012, joining
Mexican sister carrier VivaAerobus. The Viva
Group is now looking at potential markets for
a third affiliate, with a selection likely in 2013.
Chile has emerged as the most likely market.
Chile has the fourth largest and fastest
growing domestic market in Latin America.
But not a single LCC currently serves Chile
– domestically or from other countries. Chile
is the largest aviation market in the world that
is still not touched by an LCC. But LAN’s
domination of its original home market will
make it challenging for any new entrant.
In 2012 LATAM handled 76% of Chile’s
domestic passengers and 67% of the country’s
international passengers.
30%
proportion of total Latin
American carrier capacity held
by leading 6 airline groups
LCCs have so far successfully only penetrated
Latin America’s two largest domestic markets –
Brazil and Mexico. LCCs now account for over
50% of passenger traffic in both countries.
VivaColombia is just starting to scratch the
surface in Colombia, where it captured only
3% of domestic passenger traffic in 2012. But
VivaColombia is planning rapid expansion,
entirely in the domestic market for at least the
medium-term, which will drive up Colombia’s
LCC penetration rate and overall growth.
Colombia’s domestic market expanded by 15%
in 2012 to 18.8 million passengers and will
likely again see double-digit growth in 2012,
led by VivaColombia and to a lesser extent
Avianca and LAN Colombia.
LCCs have not yet entered any other Latin
American domestic market and are only
operating a very small number of international
services within Latin America. The intraLatin America market has been one of the
fastest growing markets in the world, driven
by the region’s rapidly expanding economy
and growing economic ties between Latin
American countries as reliance on the US
gradually reduces. Full-service carriers are
capturing nearly all of this growth and will
continue to do so in 2013 as the region’s LCCs
at least for now remain domestic-focused.
Panama’s Copa has been the biggest
beneficiary of the boom in intra-Latin America
travel. Copa is significantly smaller than
LATAM and Avianca-TACA but has the
largest intra-Latin America network, which
connects over 50 destinations in the region.
Copa has consistently been one of the most profitable airlines in the
world, with annual operating profit margins of at least 17% since it went
public in 2005. Its consistent track record of double-digit growth and
high profitability will almost certainly continue in 2013 given its strong
position in a fast-growing segment of the market that has virtually zero
LCC penetration.
LATAM and Avianca-TACA also have benefitted from the rapid
growth in the intra-Latin America international market but also have
domestic operations in several countries and long-haul operations
to Europe. Copa only has a small domestic operation in one market,
Colombia, and doesn’t operate a single widebody aircraft.
All of Latin America’s main domestic markets recorded rapid growth
in 2012. But in most cases the profitability of domestic operations is not
nearly as high as regional international operations as competition is much
more intense domestically.
Brazil recorded 7% domestic passenger growth in 2012, representing
a major slowdown from the 16% growth from 2011 and 24% growth
from 2010. Brazil’s domestic market will likely again see only singledigit growth in 2013 as the market’s two largest carriers, TAM and
Gol, continue to cut capacity in an attempt to improve profitability.
Azul and TRIP, which are expected to complete their merger in 2013,
will continue to expand at the expense of TAM and Gol. More modest
expansion will come from Avianca Brazil.
While Brazil’s domestic market has been impacted by over-capacity
and irrational competition, particularly on trunk routes, the medium
to long-term outlook is bright, given that 99% of the market is now
controlled by just four airline groups (two LCCs and two FSCs). Brazil,
which has the world’s sixth largest economy and fourth largest domestic
airline market, is still an emerging market with huge growth potential.
Foreign carriers also continue to add capacity to Brazil, led by the US
carriers. The US-Brazil market saw an increase in capacity of about 30%
in 2012. The capacity was in response to growing demand although in
some cases the capacity added was too much and has impacted yields.
Mexico’s domestic market grew 10% in 2012 to 28 million passengers,
marking the first time the market has seen double-digit growth since
2007. Mexico’s aviation industry in recent years has under-performed the
rest of Latin America as Mexico’s economy, which is heavily dependent
on the US, has been relatively weak. But the Mexican economy has now
recovered with healthier growth expected in 2013.
The profitability and long-term outlook of Mexico’s aviation industry
has also significantly improved as a result of consolidation. Six Mexican
airlines or airline groups ceased operations between 2006 and 2010,
LCCs have so far successfully only
penetrated Latin America’s two largest
domestic markets – Brazil and Mexico.
5
... rapid and successful expansion in the US by some Latin American carriers – particularly
LAN, TAM and Copa – has levelled the playing field.
concluding with the Aug-2010 demise of
Grupo Mexicana. About 95% of the market
is now controlled by Grupo Aeromexico
and three LCCs – Interjet, Volaris and
VivaAerobus. Aeromexico had a successful
IPO in 2010 while all three LCCs are now
considering IPOs, with VivaAerobus seeking a
possible listing in 2013.
Mexico’s trio of LCCs are planning further
expansion in 2013 with a focus on the domestic
market as the Mexico-US transborder market
is highly competitive and challenging for
Mexican carriers. US carriers accounted for
71% of passenger traffic between the US and
Mexico in 2012 and continue to dominate
some other US-Latin American markets. But
rapid and successful expansion in the US by
some Latin American carriers – particularly
LAN, TAM and Copa – has levelled the
playing field.
Chile, somewhat surprisingly, saw the fastest
growth of all Latin American markets in 2012,
with domestic growth of 19% to 8.3 million
passengers and international growth of 16%
to 6.9 million passengers. Chile is a relatively
mature and small market. As its 17 million
citizens are already relatively affluent, Chile
also doesn’t have the middle class growth seen
in the region’s larger markets such as Brazil.
But Chile has a strong and growing economy,
a geography that is favourable for aviation
and a population that has the income to travel
frequently. Chile has seen steady and rapid
Brazil’s domestic market
will likely again see only
single-digit growth in 2013
6
Aerolineas continues to be the exception in
an otherwise profitable and healthy Latin
American airline industry.
growth since 2009 and will likely see more double-digit growth in 2013.
Latin America’s other two major markets, Argentina and Peru, also saw
double-digit growth in 2012. Growth in Peru was particularly impressive
and second only to Chile. Peru’s domestic market grew by 17% to 7.2
million passengers while its international market grew 18% to 6.8 million
passengers.
Peru has seen rapid expansion from the Peruvian subsidiaries of
LATAM and Avianca-TACA, both of which use Lima as an intra-Latin
America international hub. More rapid growth is expected in 2013
as Peru continues to be a battleground between Latin America’s two
largest airline groups. But further growth in Argentina is limited as
the government continues to protect flag carrier Aerolineas Argentinas
with policies that make it nearly impossible for new domestic carriers
including potential LCCs to enter, for LAN Argentina to expand, and
for foreign carriers to enter markets other than Buenos Aires.
Aerolineas continues to be the exception in an otherwise profitable and
healthy Latin American airline industry. But the carrier is still working
on a restructuring which began when it was renationalised at the end
of 2008. Aerolineas entered the SkyTeam alliance in 2012, a major
component of its new strategy, and hopes to finally progress in 2013 in
fixing its highly unprofitable long-haul operation.
Venezuela’s market is also impacted by protectionist policies. As the
sixth most populous county in the region, Venezuela has potential should
it open up in future. But for now it remains the only medium or large
size Latin American market without a local carrier that is part of Latin
America’s top six airline groups.
2013 will see more passenger growth across Latin America, following
8% average growth in 2012 as reported by Latin American airline
association ALTA. The big six groups along with a few medium size
carriers (primarily LCCs) will continue to be the main beneficiaries.
While there are potential opportunities for new LCCs to enter, most
of the growth will continue to be captured by the leading cross-border
full-service groups and the region’s five existing LCCs. The strong will get
stronger and more consolidation among the smaller carriers is likely.
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Latin
America:
Selected airlines
Aeromexico GROUP......................................................pp.10
“Aeromexico plans more capacity growth in 2013 as delayed 787s are deployed to Europe and New York”
First published on www.centreforaviation on 16th February, 2013
Avianca-TACA GROUP....................................................pp.22
“Avianca-TACA primes for re-branding and intensifying competition with LATAM”
First published on www.centreforaviation on 13th March, 2013
COPA HOLDINGS..............................................................pp.31
“Panama’s Copa on course for more industry-leading profits and double-digit growth in 2013”
gol..................................................................................pp.42
“Gol pledges a financial turnaround as it records a second consecutive annual loss, of USD745 million”
LATAM GROUP.................................................................pp.52
“LATAM’s 4Q2012 yields are damaged by aggressive competitive expansion in the US-Brazil market”
viva group....................................................................pp.61
“VivaAerobus and VivaColombia focus on domestic expansion as Irelandia ponders third Viva franchise”
First published on www.centreforaviation on 11th January, 2013
8
Selected countries
BRAZIL OVERVIEW..........................................................pp.73
“Brazil domestic growth slows in 2012 as Azul-TRIP continues to take market share from Gol”
CHILE OVERVIEW.............................................................pp.84
“Chile emerges as Latin America’s fastest growing market despite domination from LAN”
COLOMBIA OVERVIEW.....................................................pp.99
“Colombia’s aviation market poised for more rapid growth in 2013, led by VivaColombia, Avianca &
LAN”
MEXICO OVERVIEW..........................................................pp.107
“Mexico returns to double-digit domestic growth in 2012, boosting outlook for Aeromexico and LCCs”
9
Aeromexico Key Data
Fleet and Orders
Aeromexico Fleet Summary: as at 10-Apr-2013
Aircraft
In Service In Storage On Order
Total:
114
1
75
Boeing 737-700
28
0
0
Boeing 737-8
0
0
60
Boeing 737-800
14
0
7
Boeing 737-800(ETOPS) 2
0
0
Boeing 767-200ER
5
0
0
Source: CAPA Fleet Database
Aeromexico projected delivery dates for aircraft on order: as at 8-Apr-2013
10
Route area pie chart
Aeromexico international capacity seats by region: as at 8-Apr-2013
Source: CAPA - Centre for Aviation and Innovata
Top routes table
Aeromexico top ten international routes by seats: as at 8-Apr-2013
11
Premium/Economy profile
Aeromexico schedule by class of seat - one way weekly departing seats: as at 8-Apr-2013
Share price 2012/2013
Source: CAPA - Centre for Aviation and Yahoo! Financial
12
Aeromexico plans more capacity growth in
2013 as delayed 787s are deployed to Europe
and New York
Aeromexico saw its profits drop for the second consecutive year in 2012 as it was only able to
grow passenger traffic by 3% despite double-digit growth for the overall Mexican market. But
Mexico’s only surviving legacy airline group remains in the black and its outlook remains
relatively bright given its strong position in the Mexican market and the resurgence of the
country’s economy.
Grupo Aeromexico is planning to grow capacity (ASKs) by a further 6% in 2013, matching the
6% capacity increase from 2012. But the group is targeting higher RPK growth and load factors,
which it hopes will allow it to regain the share of the domestic market it lost in 2012.
Internationally, Aeromexico is planning to grow capacity by up-gauging routes, including
replacing 767-200s with new 787-8s to London and Paris. Aeromexico also plans to deploy its
first batch of 787s to New York, which it currently only serves with 737s. Aeromexico now
expects it will receive three 787-8s in 4Q2013, representing a delay of about three months due to
the current grounding of the global 787 fleet.
Aeromexico reports drop in profits and load factors for 2012
Aeromexico recorded a net profit of MXP1.32 billion (USD104 million) in 2012, representing a
25% drop compared to 2011. In 2011 a weak second half resulted in its profits dropping by 11%
compared to 2010, which was a landmark year for Aeromexico as the suspension of services at
rival Grupo Mexicana paved the way for a return to profitability after several years in the red.
The group recorded an 11% increase in revenues for 2012 to MXP39.6 billion (USD3.1 billion)
but operating expenses increased 15% to MXP32.8 billion (USD2.6 billion). Aeromexico’s
operating profit dropped 32% to MXP2.53 billion (USD200 million) and its operating profit
margin dropped 4ppts from 10.4% in 2011 to 6.4% in 2012.
In 2011, Aeromexico grew ASKs by 20% and revenues by 28% as it moved, along with Mexico’s
three low-cost carriers, to quickly fill the void left by Mexicana. Aeromexico didn’t have any
problems filling the capacity added in 2011 as RPKs grew by 21% and its load factor improved to
78.4%. But in 2012 Aeromexico struggled to fill the seats it added to the market as its load factor
fell by 1.8ppts to 76.6% (see background information).
In discussing 4Q2012 results with analysts on 14-Feb-2013, Aeromexico CEO Andres Conesa
said the focus for 2013 will be on adding capacity in existing markets and improving the
performance of the 18 routes added in 2012. “On the network side it will be a year of
consolidation,” Mr Conesa said.
As most of the capacity expansion in 2012 was directed to the domestic market with seven new
domestic destinations opened, Aeromexico plans to focus more on the international market in
13
2013. Grupo Aeromexico currently allocates 73% of its seats and 40% of its ASKs to the
domestic market, according to Innovata data. On a revenue basis, domestic flights generated
48% of Aeromexico’s revenues in 2012 while international flights generated 42% with charters,
cargo and other revenues accounting for the remaining 10%.
The international expansion in 2013 will be driven by the up-gauging of existing international
flights to Europe and the US. Aeromexico plans to replace three 767-200s with larger 787-8s
and two 737-700s with four 737-800s, leaving two 737-800s for growth on medium-haul
international routes.
Aeromexico now expects to receive first batch of 787s in 4Q2013
The 6% increase in ASKs for 2013, which includes about a 5% increase in 1H2013 followed by a
7% to 8% increase in 2H2013, is based on the current fleet plan which envisions the first 787-8
being placed into service in Aug-2013. But Mr Conesa acknowledged the carrier’s first batch of
three 787s will now most likely be delivered in 4Q2013, which will have a slight impact on its
capacity production for the full year. Boeing has halted all deliveries of 787s since the global inservice fleet was grounded in mid-Jan-2013 and it is unclear when the grounding will be lifted
and how long it will take for the delivery schedule to be recovered.
“Certainly it will be delayed [but] we expect the plane to be delivered this year for sure,” Mr
Conesa explained. “Officially we haven’t received from Boeing any new date. The planes will fly
but probably instead of flying in the third quarter they will be flying in the fourth quarter. And
that will mean less ASK production in the international market because of the delay.”
Mr Conesa said the plan is to have the 787s operate from Mexico City to London Heathrow,
Paris CDG and New York JFK starting from Aug/Sep-2013. If there are delivery delays as
expected, Aeromexico will slightly extend the leases on three 767-200s and postpone the training
of 100 pilots which have been selected to transition from the 767 to 787.
Aeromexico to use 787 to increase capacity to New York
New York JFK is currently served with four daily 737-800 flights but Mr Conesa said they had
determined that the 787, unlike the 767, can be “competitive” on the Mexico City-New York
route. Aeromexico already has a leading 47% share of capacity between Mexico City and New
York (includes all New York area airports), which it will expand on after it up-gauges some of its
Mexico City-New York frequencies to the 787.
Mexico City-New York JFK is now also served by SkyTeam partner Delta Air Lines and
Mexican LCC Interjet while Mexico City-Newark is served by United. Delta, which has a hub
at JFK, acquired a 4% stake in Aeromexico in 2012, cementing a partnership which now includes
codeshares on over 200 flights. Cancun to New York JFK and Mexico City to Delta’s fortress
hub in Atlanta were two of 11 international routes Aeromexico added in 2012 as it looked to
exploit synergies from the newly expanded partnership with Delta.
14
Mexico City to New York* capacity by carrier (one-way seats per week): 19-Sep-2011 to 04Aug-2013
Source: CAPA – Centre for Aviation & Innovata
Note: *includes JFK and Newark airports
Aeromexico currently operates a daily flight to Paris using a mix of 767-200s and 767-300s,
according to Innovata. The carrier launched in Dec-2012 three weekly 767-200 flights to
London, using slots acquired from SkyTeam partner Air France. Aeromexico competes on the
Mexico City-London Heathrow route with British Airways, which operates three weekly 747400 frequencies to Mexico City, while Air France operates alongside Aeromexico on Mexico
City-Paris with a daily 747-400 flight.
See related article: Aeromexico faces formidable challenges in making new London Heathrow
flights viable
Aeromexico currently has a fleet of seven 767s which it uses to serve Buenos Aires, Tokyo Narita
and Santiago as well as London Heathrow and Paris CDG. It also has a fleet of four 777200ERs which are currently used to serve Madrid, Sao Paulo, Shanghai Pudong as well as some
frequencies to Buenos Aires.
Aeromexico plans to begin deploying 787s on Asian routes in early 2014
15
Mr Conesa said Aeromexico intends to use its second batch of 787-8s, which are slated to be
delivered in early 2014, on the Tokyo and Shanghai routes. He said Aeromexico is not using its
first batch of three 787s for its Asia routes because the second batch will be the first aircraft with
higher thrust engines, allowing “probably under certain conditions non-stop flights from Mexico
City to Narita”.
Aeromexico currently serves Tokyo with three weekly 767 flights that operate via Tijuana on the
outbound sector and non-stop on the return leg. Shanghai is served with two weekly 777 flights
with stops in Tijuana on both the outbound and return sectors. The 767-200/300 and 777200ER is unable to operate non-stop to Asia from Mexico City due to the city’s high altitude.
The 787 represents a game changer for Aeromexico’s Asia operation, which has suffered over the
years although Mr Conesa said it performed better and contributed positively in 2012. The 787
will significantly improve the economics and product of the carrier's trans-Pacific offering. Mr
Conesa said Aeromexico expects to add frequencies to both Tokyo and Shanghai “as more 787s
kick in”.
Aeromexico is now committed to acquiring nine 787-8s, including two aircraft purchased
directly from Boeing in 2006 and seven leased aircraft. In 2012 the group added an order for six
787-9s with purchase rights for four additional 787-9s (at the same time it also placed an order
for 60 737 MAX aircraft plus 30 purchase rights). The new widebody fleet of at least 13 787s
allows for modest growth as well as the replacement of the current fleet of seven 767s and four
777s.
The decision to use the 787 to New York indicates that Aeromexico may not opt to expand its
long-haul network but instead use the additional capacity to up-gauge some medium-haul routes
now operated with 737s as well as add frequency to its two Asian routes. Los Angeles could be a
potential second US route for Aeromexico's 787s. Aeromexico currently serves Los Angeles from
Mexico City with 33 weekly flights.
Mexico City-Los Angeles is the carrier's largest international route based on seats while Mexico
City-New York is the second largest. Based on ASKs, Mexico City-New York is the carrier's
biggest US route and its fourth biggest international route overall as it is a longer flight (over five
hours compared to under four hours for Mexico City-Los Angeles).
Aeromexico top 10 international routes based on capacity (ASKs): 10-Feb-2013 to 17-Feb2013
Aeromexico plans to wait for its
787-9s before placing the 787
on Madrid and Sao Paulo, its
two biggest long-haul routes,
while the nine 787-8s will be
used for Buenos Aires, London,
Paris, New York, Tokyo,
Santiago and Shanghai. Buenos
Aires and Santiago are the last
of the current 767 routes that
are slated to be up-gauged to
the 787-8.
16
Aeromexico plans slight increase in domestic capacity as ERJs are replaced with
EJets
Aeromexico also plans to up-gauge some domestic flights during 2013 as six ERJ-145s are
replaced with five E170/175s, giving regional subsidiary Aeromexico Connect a year-end fleet of
32 ERJ-145s, eight E170/175s and 19 E190s. But the ASK impact from these changes are
relatively small compared to the increase in international ASKs brought about by the
introduction of 787-8s and 737-800s.
In 2012 Aeromexico Connect significantly increased domestic capacity as three second-hand
E170s and eight new E190s were added to the fleet while only one ERJ145 was returned.
Aeromexico mainline also took delivery of three new 737-800s in 2012 while an older 737-800
was returned. Aeromexico mainline currently operates a fleet of 45 737-700/800s along with its
11 widebodies while Aeromexico Connect currently operates a fleet of 60 regional jets.
Aeromexico fleet: 4Q2012 vs 4Q2011
Source: Grupo Aeromexico
Aeromexico Connect recorded a 7% increase in
scheduled domestic traffic in 2012 to 5.5
million passengers, according to Mexican
DGAC data. Aeromexico mainline saw only a
1% increase in scheduled domestic traffic to 5.0
million passengers.
Aeromexico Connect also recorded a 61%
increase in scheduled international traffic in
2012 to 653,000 passengers while Aeromexico
mainline recorded a 3% increase in scheduled
international traffic to 3.3 million passengers.
As a result the total Grupo Aeromexico
scheduled domestic traffic only grew by 4% in
2012 from 10.2 to 10.6 million passengers
while the group's scheduled international traffic
grew at a 10% clip to 3.9 million passengers.
Aeromexico was able to grow its share of Mexico's international market as the total international
market expanded by 7% in 2012 to 27.1 million passengers (including 21.2 million passengers
carried by foreign carriers). Aeromexico, however, saw its domestic market share shrink in 2012.
Mexico’s total domestic market grew by 10% to 28.1 million passengers, leaving Grupo
Aeromexico with a 38% share of the market compared to a 40% share in 2011.
17
Mexico domestic market share (% of scheduled passengers) by carrier: 2012
Source: Mexico’s DGAC
Mr Conesa said the group aims to recapture a 40% share of Mexico’s domestic market in 2013.
He is confident this can be achieved despite only a marginal increase in domestic capacity from
Aeromexico and despite the fact the overall market is expected to grow in the high single digits.
Mr Conesa explained the group will focus more on load factors and lower fares if necessary to
drive up domestic traffic. He said there is particularly room for higher loads on flights to the
seven domestic stations Aeromexico added in 2012. “We will change the strategy a little bit and
be more aggressive with yields to have better load factors,” he added.
Such a strategy could result in more intense competition, particularly as Mexico’s three LCCs
will almost certainly expand faster domestically than Aeromexico in 2013. For example, Volaris,
which grew its domestic traffic by 25% in 2012, is planning to again grow capacity by about 20%
in 2013 with a focus on the domestic market.
Aeromexico is bullish on Mexico’s economy
The ultimate success of Aeromexico’s more aggressive domestic strategy could hinge on how the
Mexican economy performs in 2013. Mexico’s economy, which grew by about 4% in 2012, is
expected to grow by another 4% in 2013. If the economic growth figures hold up and inflation
stays low, domestic demand should increase sufficiently to support higher load factors from
Aeromexico as well as significant capacity increases from Mexico’s three LCCs – Volaris, Interjet
and VivaAerobus.
Mr Conesa is bullish on Mexico’s economic outlook and pointed out that the new policies being
implemented by the country’s new president is expected to lead to a higher growth rate in the
medium-term. “GDP growth did de-accelerate slightly in the fourth quarter however Mexico’s
outlook remains strong,” he said.
Aeromexico has the flexibility to accelerate expansion in 2013 should economic conditions be
even better than expected as it has several aircraft with leases expiring. The group also has the
18
flexibility to cut capacity should market conditions deteriorate and shrink its fleet below the
current level of 116 aircraft.
Change in ownership structure should have positive impact
Mr Conesa is also optimistic the recent changes in Aeromexico’s ownership structure and board
will have a positive impact on the group. Aeromexico announced on 12-Feb-2013 that an
affiliate of Mexican bank Banamex had sold an additional 20% stake in Aeromexico to a group of
Mexican investors led by Eduardo Tricio. Banamex acquired Aeromexico in 2007, when the
airline group was privatised, and had earlier sold a portion of its stake as part of the group’s Apr2011 initial public offering. Banamex is now left with only a 16% stake in Aeromexico.
Mr Tricio, who has been a shareholder in Aeromexico alongside Banamex since 2007, has been
appointed Aeromexico’s new chairman. Mr Conesa pointed out that Mr Tricio has in-depth
knowledge of Aeromexico and his investor group also has extensive experience with Mexican
business and industry, which Aeromexico can now benefit from. “The new ownership, which has
a longer term view, will provide additional dynamism to complete important projects, adding
more value to our company,” Mr Conesa said.
Mr Conesa would not elaborate on which projects or initiatives will come up for board approval
in 2013. But the group should now be better positioned to respond to changes in Mexico’s
dynamic market. “Certainly some things will happen. We expect them to be on the positive side.
As we now have an investor with a longer term view, the projects we have in the pipeline will be
implemented faster,” Mr Conesa explained. “There is no change in terms of strategy but
certainly there will be changes regarding certain projects we are looking for.”
Aeromexico should be able to extend recent string of profits
Aeromexico enters 2013 with a bright outlook. While the group has seen its profits drop since
the peak in 2010 and early 2011, it has been in the black for three consecutive years – a
noteworthy achievement for the historically unstable Mexican airline industry. Aeromexico
should be able to continue to generate profits and cash in on its leading position in Mexico’s
domestic and international markets. The upcoming arrival of the 787, and later the 737 MAX,
will improve operating economics and help cement Aeromexico’s leading position in the
Mexican market. There will be challenges, including from fast-expanding LCCs. But
Aeromexico has the strategy and initiatives in place to pursue modest and profitable growth.
19
Currency conversion used: USD1=MXP12.68
BACKGROUND INFORMATION
Grupo Aeromexico financial and operational highlights: 2012 vs 2011 and 4Q2012 vs 4Q2011
Source: Grupo Aeromexico
Grupo Aeromexico financials: 2012 vs 2011
20
Source: Group Aeromexico
21
AviancaTACA Key Data
Fleet and Orders
AviancaTACA Fleet Summary: as at 10-Apr-2013
Aircraft
Total:
Airbus A318-100
Airbus A319-100
Airbus A320-200
Airbus A321-200
Airbus A330-200
Airbus A330-200F
ATR 42-300
ATR 42-320
ATR 72-212A(72-600)
Beech Aircraft Corporation
BEECHA90KINGAIR
Boeing 767-200ER(F)
Boeing 767-300ER
Boeing 767-300F
Boeing 787-8
Cessna Aircraft Company
CESSNA208B
Dornier DO328-110
Embraer ERJ190-100IGW(AR)
Fokker F-27-050-300
Fokker F-28-0100
Short Brothers SD3-60-100
Short Brothers SD3-60-200
In Service
158
10
29
53
5
10
2
1
4
0
In Storage
4
0
0
0
0
0
0
1
0
0
On Order
49
0
6
5
6
0
2
0
0
15
1
4
0
0
0
0
1
1
0
0
0
11
0
0
2
12
0
0
15
0
0
0
10
1
1
0
0
0
0
0
1
2
0
0
0
0
Source: CAPA Fleet DatabaseSource: CAPA Fleet Database
AviancaTACA projected delivery dates for aircraft on order: as at 8-Apr-2013
22
AviancaTACA international capacity seats by region: as at 8-Apr-2013
Top routes table
AviancaTACA top ten international routes by seats: as at 8-Apr-2013
23
Avianca schedule by class of seat - one way weekly departing seats: as at 8-Apr-2013
24
Avianca-TACA primes for re-branding and
intensifying competition with LATAM
Avianca-TACA will come full circle during 2H2013 as its various airlines unify under the
Avianca brand more than three years after the Avianca-TACA merger kickstarted consolidation
in Latin America and drove the decision by LAN and TAM to form what is now the region’s
powerhouse LATAM Airlines Group. During 2013 the competition between the two largest
airline groups in Latin American will only intensify in the markets where they already compete
fiercely – Colombia, Ecuador and Peru.
With Avianca-TACA completing its merger more than two years ahead of LATAM, AviancaTACA has the benefit of harvesting a combined network whereas LATAM is just beginning to
ferret out the benefits of its newly combined network resources.
In addition to continued competitive pressure from LATAM during 2013 Avianca-TACA will
also encounter some new competition on international flights from Ecuador and some pressure
from startup VivaColombia in its largest market Colombia. At the same time Avianca-TACA
continues to battle infrastructure constraints at its largest hub Bogota, which could result in
further expansion at its Lima and San Salvador hubs.
Solid financial performances supply Avianca-TACA with a robust foundation
Avianca-TACA began 2013 on strong footing after recording for 2012 its second annual profit
as a combined entity. Avianca-TACA Holding reported on 08-Mar-2013 a nearly 74% increase
in net profit to COP352 billion (USD195 million). Operating revenues increased 8% to COP7.6
trillion (USD4.2 billion) while Avianca-TACA’s operating profits reached COP507 trillion
(USD281 million). The company’s traffic and capacity each grew at a 10.3% clip, which
produced a healthy 80% load factor.
The combined entity transported 23 million passengers during 2012, which is a 27% increase
from the 18 million passengers Avianca-TACA carried in 2010, the year the two airline groups
completed their merger. The figures include Colombia-based Avianca, El Salvador-based
TACA and subsidiaries in Central America, Ecuador and Peru but exclude Avianca Brazil,
which is not part of Avianca-TACA Holding but is entirely owned by Avianca-TACA's largest
shareholder, Synergy Aerospace.
Avianca-TACA annual passenger growth: 2010 to 2012
Note: includes airlines under AviancaTACA Holding
Source: CAPA – Centre for Aviation
and company reports
25
Unifying all the carriers under the more recognisable Avianca brand during 2H2013 will also
drive benefits for the combined entity as TACA-branded carriers in Costa Rica, El Salvador and
Peru are rebranded. The group’s Ecuadorean subsidiary AeroGal will also transition to the
Avianca brand.
Once the rebranding is complete the combined entity will have a much easier time marketing
and highlighting its network strength under a single name, which will eliminate any confusion
passengers might currently experience when travelling on the numerous subsidiaries presently
operating in the Avianca-TACA Group.
Competitive pressure in Colombia will intensify
Avianca-TACA holds positions of strength in Latin America’s third, sixth and ninth largest
markets of Colombia, Peru and Ecuador. The company also feeds into the largest market Brazil
through sister carrier Avianca Brazil.
Avianca’s status as Colombia’s flag carrier results in the carrier commanding a leading status in
the market. According to Colombian CAA data, Avianca captured 61% of Colombia's domestic
passenger market in 2012 and 41% of the country's international market. The Avianca subsidiary
transported 11.5 million domestic and 3.5 million international passengers in 2012, representing
increases of 18% and 15% respectively over 2011, according to Colombian CAA data. Avianca
recorded 82% load factors for both its domestic and international operations.
When including its sister carriers, Avianca-TACA captured 51% of Colombia's international
passenger market in 2012. The group's subsidiaries from Costa Rica, Ecuador, El Salvador and
Peru all serve Colombia along with Bogota-based Avianca.
Avianca currently accounts for about 55% of total seat capacity in Colombia, according to
Innovata data. This excludes capacity from other carriers in the Avianca-TACA Group.
Colombia systemwide capacity share (% of seats) by carrier: 11-Mar-2013 to 17-Mar-2013
Note: LAN Airlines capacity includes capacity from LAN Colombia and other LAN subsidiaries
Source: CAPA – Centre for Aviation and Innovata
26
But during 2013 Avianca-TACA will see increasing pressure from LAN Colombia now that it
has completed the restructuring of Aires, which LAN purchased in late 2010 and rebranded as
LAN Colombia in late 2011. LAN Colombia has since focused primarily on the Colombian
domestic market and transported less than 100,000 international passengers in 2012. But LAN
Colombia is focusing on international expansion in 2013 and recently placed into service its first
widebody aircraft, a 767, which will be used from 01-Apr-2013 to replace A320s on the Bogota
to Sao Paulo and Miami routes.
Avianca actually benefitted from the Aires overhaul as LAN wiped out Aires’ junk pricing and
levelled some rationality in the Colombian domestic market. Both Avianca and LAN Colombia
also benefitted from Copa Colombia turning its focus onto international routes, thereby reducing
capacity in the Colombian domestic space.
Avianca faces new competitor in VivaColombia
The May-2012 launch of low-cost carrier VivaColombia, who has professed to “ridiculously low
fares”, could upset some of the rationality of the Colombian domestic market. Unlike Aires,
VivaColombia does not have a large presence at Bogota or on trunk routes. But Avianca has
responded to VivaColombia’s market entry by operating some of the secondary markets opened
by VivaColombia and matching the LCC’s fares.
While Avianca can absorb offering unsustainable fares for a period of time, it will need a better
long-term strategy to compete with Colombia’s first low-cost carrier, which is backed by
investment firm Irelandia who is also an owner of Mexican low-cost carrier VivaAerobus.
Irelandia is now examining replicating the low-cost Viva model elsewhere in Latin America,
which could result in new competitive pressures for Avianca-TACA.
Further competition from LAN Colombia is also expected as LAN Colombia is now looking at
using its 767 fleet to launch New York, a market served by Avianca, or Los Angeles, which
would re-open a market abandoned by Avianca some years ago. It will be interesting to watch
Avianca’s reaction to LAN’s potential opening of a market from Colombia to the US west coast
given all of Avianca’s US flights are operated to the US east coast.
TACA operates service from its San Jose, Costa Rica and San Salvador hubs to Los Angeles,
giving the Avianca-TACA Group US west coast links to two of its hubs for onward connectivity
to the company’s combined network, including Bogota. Avianca and all carriers serving Bogota
continue to face operational constraints at the airport, which has resulted in Avianca-TACA
looking at ways it can leverage its other large hubs in Lima, San Jose and San Salvador.
Lima emerges as a key hub for Avianca-TACA
Avianca-TACA has already moved to bolster its international service from Lima by positioning
in late 2012 two Airbus A330 widebodies for operation by TACA Peru to up-gauge flights to
Bogota, Buenos Aires and Miami. It is the first time Avianca-TACA has positioned widebodies
outside of Bogota, and shows the company is working to leverage the combined network, with
Lima emerging as a strategic north-south hub for intra-Latin America routes.
27
TACA Peru is now the second largest carrier in Peru’s international and domestic market,
following rapid domestic expansion during the last couple of years. Since 2010 the carrier has
introduced service to nine domestic markets in Peru, taking advantage of the country’s rapid
growth.
In 2012, TACA Peru captured 13% of Peru's domestic market and 12% of the country's
international market, according to Peruvian DGAC data. The carrier flew 900,000 domestic
passengers and 800,000 international passengers, representing increases of 107% and 50% over
2011.
LAN Peru remains the dominant carrier in the Peruvian market, accounting for 62% of domestic
and 33% of international passengers in 2012. Based on current capacity data from Innovata,
LAN accounts for 53% of total capacity in Peru compared to 19% for TACA. (Both sets of data
exclude sister carriers in the Avianca-TACA and LATAM groups.)
Lima serves as a highly strategic point for both airline groups as it has become a focus for
LATAM in connecting north-south traffic flows from North America and helps AviancaTACA penetrate some markets deeper into South America than those it offers from Bogota and
San Salvador.
Peru systemwide capacity share (% of seats) by carrier: 11-Mar-2013 to 17-Mar-2013
New competition in Ecuador
Avianca-TACA has a presence in Ecuador through Ecuadorean subsidiary AeroGal along with
service operated by Avianca and TACA. But the country’s largest domestic carrier TAME is
injecting new competition for Avianca-TACA on service from Quito to Bogota, breaking a
monopoly held by Avianca, and on Quito-Lima, which is served by Avianca-TACA and LAN.
28
While government-owned TAME is not a traditional low-cost carrier, it entered those markets
in 2012 specifically to capitalise on their profitability and an opportunity to undercut fares.
During 2013 it will be interesting to see how those particular markets evolve as TAME is
Ecuador’s largest domestic carrier but both LATAM and Avianca-TACA also serve the
domestic market through their respective subsidiaries LAN Ecuador and AeroGal.
AeroGal currently accounts for 11% of total capacity in Ecuador, making it the third largest
carrier behind TAME and LAN Ecuador, according to Innovata data. TAME accounts for a
leading 33% of capacity while LAN accounts for 23%. (The AeroGal and LAN Ecuador figures
exclude capacity provided by sister carriers in the Avianca-TACA and LATAM groups.)
Ecuador systemwide capacity share (% of seats) by carrier: 11-Mar-2013 to 17-Mar-2013
Source: CAPA - Centre for Aviation & Innovata
While TAME holds a strong position in point of origin in Ecuador, it has little exposure in
Bogota or Lima as it is just dipping its toes in international service. Even with government
backing TAME faces a tough time competing with the network scale consolidation has afforded
LATAM and Avianca-TACA. TAME is competing with both groups on service to their
strategic hubs, which offer connections throughout Latin America, something TAME lacks as it
just resumed offering international service in 2010.
Copa challenges Avianca-TACA’s strength in Central America
Given LATAM’s subsidiaries in Argentina and Chile, the company naturally has an advantage
in southern South America. But Avianca-TACA’s hubs in San Salvador and San Jose give it an
advantage over LATAM in Central America. However, Avianca-TACA faces a formidable
competitor in Central America as Copa has leveraged the geographical position of Panama’s
Tocumen Airport as an optimal transit point for north-south traffic flows. Unlike the challenges
Avianca-TACA faces in Colombia and to a lesser extent San Salvador, the Panamanian
government has backed expansion at Tocumen. A new 12-gate concourse opened in 2012 and
this year a new project is scheduled to commence that will eventually supply 20 additional gates.
29
Avianca-TACA capacity by region (% of seats): 11-Mar-2013 to 17-Mar-2013
Avianca-TACA also faces capacity constraints at San Salvador, which could further extend
Copa’s advantage in Central America. But Avianca-TACA management has previously stated
that it is optimistic there could be positive developments at San Salvador in the future.
Some holes exist in Avianca-TACA’s combined network
As the history of Latin American aviation evolves, Avianca and TACA through their 2010
landmark merger will be credited for ushering in consolidation into the relatively young market.
But while consolidation drives a certain level of rationality, like other global regions Latin
America has its own nuances that drive a different set of competitive dynamics. The combined
Avianca-TACA is a formidable competitor to the might created by LAN and TAM morphing
into LATAM, but Avianca-TACA’s relative weakness in the Southern Cone to LATAM could
create challenges in the future, as Argentina and Chile are the fourth and fifth largest markets in
the region.
Avianca-TACA does not have a measurable presence in that region, and its stature in the largest
Latin American domestic market Brazil is somewhat limited. Sister carrier Avianca Brazil, while
rapidly growing, still only accounts for a 5% share of the domestic market while TAM has a
majority 41%.
Despite some geographical weaknesses Avianca-TACA does have strategic coverage in Central
and South America and also has the advantage of completing its merger 30 months ahead of
LATAM, whose larger scope required closer scrutiny from regulators. After finally gaining
approval in 2012 after a 21-month process to get the proper endorsement for their merger, LAN
and TAM have just started studying how to maximise their combined network.
While LATAM is the new powerhouse in Latin America, the combination of Avianca-TACA
provides a formidable competitor if the company continues to sustain profitability and
successfully leverages the key points in its network.
30
COPA HOLDINGS Key Data
Fleet and Orders
COPA Fleet Summary: as at 10-Apr-2013
Aircraft
In Service
In Storage
On Order
Total: 69
0
27
Boeing 737-700
15
0
0
Boeing 737-800
42
0
27
Embraer ERJ190-100IGW(AR)
12
0
0
CAPA Fleet DatabaseSource: CAPA Fleet Database
COPA projected delivery dates for aircraft on order: as at 8-Apr-2013
31
COPA international capacity seats by region: as at 8-Apr-2013
Top routes table
COPA top ten international routes by seats: as at 8-Apr-2013
32
COPA schedule by class of seat - one way weekly departing seats: as at 8-Apr-2013
33
Panama’s Copa on course for more industryleading profits and double-digit growth in 2013
Panama-based Copa continues to outperform nearly every airline group in the world, recording
an operating profit margin of 17.9% for 2012 as profits increased by 5% to USD327 million.
Copa has been consistently highly profitable since its 2005 initial public offering, with annual
operating margins every year of at least 17%. During this period the average operating profit
margin in the global airline industry has been in the zero to 4% range.
Copa, which has more than tripled its annual RPKs since 2005, expects more double-digit
growth and industry leading profitability in 2013. Panama has the fastest growing economy in
Latin America and the region overall continues to have healthy GDP growth, fuelling demand
for travel within the region. Copa is well positioned to cash in on the continued rapid growth in
international travel within Latin America as Panama City is the largest intra-Latin America hub
and, unlike most other airports in the region, is committed to expanding the infrastructure to
keep up with Copa’s rapid growth trajectory.
Copa reports another year of healthy profits for 2012
Copa in 2012 saw a slight reduction in its margin compared to 2010 and 2011, when it recorded
operating profit margins exceeding 20%. But the airline group continues to be able to grow
profitably on the back of rapid growth in intra-Latin America traffic and keep intact its record of
operating margins above the 17% mark.
Copa annual operating profit margin: 2004 to 2012
2004 2005 2006 2007 2008 2009 2010 2011
20.6% 17.9% 19.5% 19.2% 17.4% 17.8% 20.5% 21%
2012
17.9%
Source: CAPA – Centre for Aviation & company reports
Copa revenues grew 23% to USD2.25 billion in 2012 as costs increased by 28% to USD1.85
billion, resulting in an operating profit of USD403 million. Revenues have more than quintupled
since 2004, when Copa generated only USD400 million in revenues.
The carrier grew RPKs by 23% in 2012, nearly matching a 24% growth in capacity. Copa’s
75.4% average load factor is much lower than its US peers. But the group is more focused on
maintaining yields and its unusually low break-even load factor of 61%.
Copa Holdings financial and operating highlights: 2012 vs 2011 and 4Q2012 vs 4Q2011
34
Source: Copa Holdings
Note: Adjusted net income excludes fuel hedge losses and one-time items
Copa clearly benefits from relatively limited competition in the intra-Latin America market,
where it is able to offer more city pairs and generally shorter transit times than the region’s other
airline groups. It also benefits from virtually no competition from low-cost carriers as nearly all
LCC capacity in Latin America is allocated to domestic markets while Copa allocates over 90%
of its capacity to the international market. Panama City is served by only one LCC with three
weekly flights to a destination Copa does not serve.
Copa currently accounts for about 84% of seat capacity at Panama City, according to Innovata
data. But it is Copa’s approximately 25% share of international capacity within Latin America
and the Caribbean that is most important as Panama itself is a small albeit rapidly growing
market with a population of less than four million.
Its strong position in a growth market has allowed Copa to increase fares and pass on the higher
price of fuel to passengers when necessary to maintain profit margins. Copa has consistently been
able to avoid any significant impact to its bottom line when fuel prices rise because most of the
markets it serves benefit economically from higher commodity prices, resulting in higher demand
that is sufficient to absorb increases in fares and fuel surcharges.
Copa’s outlook for 2013 is again bright
In reporting another year of strong profits on 06-Feb-2013, Copa painted a bullish outlook and
said it expects its operating margin to return to the 18% to 20% range in 2013. But capacity
growth will slow down from 24% in 2012 to 14% in 2013. ASKs are expected to grow by 17% to
35
18% in 1H2013, driven by the expansion from late 2012, while year-over-year capacity growth in
2H2013 will be only about 11%.
Copa CEO Pedro Heilbron is confident the additional capacity will be absorbed given the
continued positive economic indicators from Panama and the broader Latin America region.
“Economic prospects for the region continue to be favourable,” he told analysts during a
discussion of the group’s 4Q2012 results.
Mr Heilbron added that Panama’s economy grew by an estimated 10% to 11% in 2012 and is
expected to grow by a further 8% in 2013. Latin America’s overall GDP is expected to grow by
almost 4% in 2013. “This should have a positive impact on the demand for our services, as we
continue to expand and strengthen even more our network dominance for intra-Latin America
travel,” he said.
Unlike in 2011 and 2012, when Copa added 14 new destinations, Mr Heilbron said Copa will
focus in 2013 on expanding capacity to existing markets. So far Copa has unveiled plans to add
only one new destination in 2013, Boston, although a couple more destinations are under
consideration.
Boston, Copa’s eighth destination in the US and its 65th overall, will be served daily from 10Jul-2013. Mr Heilbron says he is “very optimistic” about the prospects of the Panama CityBoston route as the city is not currently well linked with Latin America. Copa will be the only
Latin American carrier serving Boston, which has traditionally been only a gateway for services
to Europe, the Caribbean and Canada until Japan Airlines became the airport’s first Asian carrier
in 2012.
Copa steadily grows existing routes
Copa has also already unveiled plans to increase capacity in 1H2013 to Orlando in Florida,
Punta Cana in the Dominican Republic and Port of Spain in Trinidad. Orlando and Punta Cana
will receive their fourth daily frequency while Port of Spain will be upgraded from seven to 12
weekly frequencies.
Copa in recent years has been steadily adding frequencies in its existing markets as it adds banks
of connecting flights at Panama City. The additional frequencies lead to more city pairs and
reduced transit times, allowing Copa to further increase the advantage it has in the intra-Latin
America market.
Copa in 2012 added capacity in 24, or nearly 40%, of its destinations as it added almost 90
frequencies. In Dec-2012 capacity increases were implemented to six destinations: Bogota (six to
seven daily flights), Cancun (four to five daily flights), Sao Paulo (three to four daily flights), Los
Angeles (two to three daily flights), Washington Dulles (one to two daily flights) and Santa
Cruz in Bolivia (one to two daily flights).
Panama City-Bogota is Copa’s second largest route and connects its main hub with the smaller
hub of subsidiary Copa Colombia. Bogota-Panama City is currently served with 92 weekly
return frequencies. Only Panama City-San Jose (Costa Rica) is bigger, with 98 weekly
frequencies. Cancun is one of four markets now served with five daily flights – the others being
Lima in Peru, Medellin in Colombia and Santo Domingo in the Dominican Republic.
36
Copa Airlines top 10 routes based on weekly frequencies (to and from): 10-Feb-2013 to 17-Feb2013
Copa also has been
expanding capacity by
up-gauging
frequencies. Copa in
recent years has only
been taking 737-800s,
which it sees as the
ideal aircraft given the
maturation of most of
its routes. Copa
currently has an allnarrowbody fleet
consisting of 57
737NGs and 26
Embraer E190s.
As new 160-seat 737-800s come in Copa has been returning some of its smaller 124-seat 737700s while not changing the size of its fleet of 94-seat E190s. Copa still sees a need for -700s on
some of its longest routes that the -800 cannot operate without payload restrictions and the
E190 for thin regional routes. The re-engined 737 MAX would open up the possibility of bigger
aircraft on its longer routes. But Copa, which operates some of the longest 737 routes in the
world, has not yet ordered the 737 MAX or A320neo.
Copa is now committed to purchasing another 30 of the current generation 737-800s, which will
be used for a mix of replacing older 737NGs and for growth as the carrier plans to expand its
total fleet to 102 aircraft by the end of 2015. Copa will expand its fleet by seven 737-800s in
2013, giving it 64 737NGs (46 737-800s and 18 737-700s) by year-end. The group expanded its
fleet by 10 aircraft in 2012, when it took delivery of 13 additional 737-800s while returning one
737-800s and two 737-700s.
Copa fleet plan for 2011 to 2015: as of Feb-2013
Source: Copa Holdings
37
Copa completes 18-month period of very rapid network growth
Only two years ago Copa’s network consisted of 50 destinations. Copa has launched services to
14 destinations since Jun-2011, including nine in 2011 and another five in 2012. Mr Heilbron
stated that Copa plans to focus on spooling up and improving the contribution to these 14
destinations before resuming rapid network expansion.
The 14 new destinations have included an even mix of North America (Chicago, Las Vegas,
Toronto), the Caribbean (Curaçao, Nassau and Montego Bay), Central America (Liberia in
Costa Rica and Monterrey in Mexico) and South America (Asunción in Paraguay, Cúcuta in
Colombia, Iquitos in Peru and Brasilia, Porto Alegre and Recife in Brazil).
Copa tries to maintain a well-balanced network as an overwhelming majority of its traffic
consists of transit passengers. With the addition of Boston, Copa’s network will include 31
destinations to the south in South America and 33 to the north, spread across North America
(9), Central America/Mexico (11 excluding Panama) and the Caribbean (13). All but two of its
64 destinations are linked to Panama City, with the other two only served with domestic flights
from Bogota.
Copa Airlines network: as of Feb-2013
Source: Copa Airlines
Note: includes flights operated by Copa Colombia
38
Unlike larger Latin American airline groups, Copa is focused almost entirely on international
traffic within the Americas. Copa is in one domestic market, Colombia, where it has been
steadily reducing capacity in recent years to avoid competition from Avianca and LAN
Colombia.
Based on Colombian CAA data, Copa saw its domestic traffic drop by 19% through the first 11
months of 2011 to 1.4 million passengers, giving it only an 8% share of Colombia’s domestic
market. Copa, however, grew its international traffic in Colombia by 25% through the first 11
months of 2012 to 1.4 million passengers.
Copa is the second largest international carrier in Colombia, accounting for 17% of international
traffic through the first 11 months of 2011. Mr Heilbron said Copa foresaw a challenging
domestic market and reacted by focusing more on increasing capacity from Colombia to its
Panama hub. Copa currently links nine cities in Colombia with Panama City and also operates
some niche point-to-point international routes from Bogota. Over 90% of Copa’s international
seat capacity is currently allocated to Panama City.
Panama City is Copa's main advantage
Copa is keen to continue to exploit Panama City’s position as the leading hub for intra-Latin
America traffic. While Copa is much smaller than leading Latin American airline groups
LATAM and Avianca-TACA, it currently has as much intra-Latin America international
capacity as LATAM and has about 25% more intra-Latin America international capacity than
Avianca-TACA, according to CAPA and Innovata data. Unlike its rivals, Copa is also almost
entirely focused on one hub and only operates in one domestic market.
The 61 destinations currently served by Copa from Panama City are over double the number of
destinations offered by LATAM and Avianca-TACA at their intra-Latin America hubs in
Bogota (Avianca-TACA) and Lima (LATAM and Avianca-TACA). This results in not only
more city pairs but also more frequencies and shorter transit times on most of the city pairs
which are served by multiple carriers. Copa, LATAM and Avianca-TACA combined account
for nearly 70% of intra-Latin America international capacity with the remaining 30% provided
mainly by airlines carrying point-to-point rather than connecting passengers.
Unlike LATAM and Avianca-TACA, Copa does not operate long-haul services to Europe. But
by focusing entirely on the intra-Latin America market its exposure to weaker economies abroad
is limited and its all-narrowbody fleet allows for a lower cost structure. Copa’s strong relationship
with United and its membership in Star Alliance, which it formally joined in Jun-2012, allows it
to offer a virtual global network without worrying about the economic downturn in Europe.
Intra-Latin America has been one of the fastest growing markets in recent years. Latin American
and Caribbean Air Transport Association (ALTA) reported 9.5% intra-Latin America RPK
growth for 2011 (international only) and 8.2% growth (both domestic and international) for
2012. As intra-Latin America traffic continues to grow, Copa and to a lesser extent its two larger
rivals are well positioned for more profitable growth.
The intra-Latin America market consists of hundreds of small but fast-growing city pairs which
cannot easily support non-stop service, giving Copa an advantage given the strength of its
39
network. Such market dynamics means few airlines will be able to match Copa’s network and
make it difficult for LCC penetration as low-cost carriers typically operate on point-to-point
rather than network models.
Copa also has a huge advantage in that Panama recognises the value of aviation to its economy
and continues to invest in airport expansion. Tocumen Airport opened a new concourse in
1H2012, providing 12 additional gates for a total of 34. The airport has already started planning
further terminal expansion, with work expected to begin in 2013. Mr Heilbron said the new
project, which includes 20 additional gates, should be completed within four years.
Tocumen has more air bridges than other Latin American hubs, a status it seeks to maintain.
With other leading Latin American airports such as Bogota well behind the growth curve,
Panama along with its hometown carrier is poised to maintain its current infrastructure
advantage.
After recording several consecutive years of profitable growth, Copa is not about to slow down.
Market conditions continue to be in its favour. There is little reason to believe it cannot maintain
its record of remarkable accomplishments in an otherwise challenging industry.
Copa Holdings annual RPMs: 2008 to 2012
Source: CAPA – Centre for Aviation and company reports
40
Copa Holdings monthly RPMs: Jan-2010 to Jan-2013
41
GOL Key Data
Fleet and Orders
GOL Fleet Summary: as at 10-Apr-2013
Aircraft
In Service
In Storage
On Order
129
1
128
31
0
0
Boeing 737-700(ETOPS) 5
0
0
Boeing 737-8
0
0
60
Boeing 737-800
93
0
68
Boeing 767-200ER
0
1
0
Total:
Boeing 737-700
Source: CAPA Fleet Database CAPA Fleet DatabaseSource: CAPA Fleet Database
GOL projected delivery dates for aircraft on order: as at 8-Apr-2013
42
GOL international capacity seats by region: as at 8-Apr-2013
Top routes table
GOL top ten international routes by seats: as at 8-Apr-2013
43
GOL schedule by class of seat - one way weekly departing seats: as at 8-Apr-2013
44
Gol pledges a financial turnaround as it records
a second consecutive annual loss, of USD745
million
Brazil’s second largest carrier Gol was unable to turn its fortunes positive in 2012 and actually
widened its loss for the year. Despite its attempts to combat the cooling Brazilian domestic
market through marked capacity cuts and turning some of its attention to international services,
Gol recorded a BRL447 million (USD222 million) loss for 4Q2012 and a BRL1.5 billion
(USD745 million) negative result for the full year.
Gol believes the changes it has made with respect to its domestic supply and various costcontainment schemes should produce a positive operating result for 1Q2013. But the carrier
made similar pronouncements during 2012 as it recorded four quarters of unprofitability, so the
pressure is mounting on management to put some grit behind a pledged turnaround.
Unlike its major rival TAM, which is now part of the powerful LATAM Airlines Group, Gol
does not have the benefit of large network to help it diversify from areas of weakness to more
robust regions. Both Gol and TAM during 2012 had to combat softening demand that resulted
from Brazil’s slowing economy. During 2012 GDP growth in Brazil was revised down to 2%
from 4%, and during 2013 Gol is projecting growth of 2.5% to a maximum of 3%. This
compares to GDP growth of approximately 7.5% growth in Brazil during 2010.
Gol suffers same problems, different quarter
The familiar problems Gol discussed throughout much of 2012 – rising fuel costs, currency
fluctuations that resulted in a 17% devaluation of the BRL against the USD, a roughly 30% rise
in airport fees and modest GDP growth – continued to plague its 4Q2012 and full-year 2012
results as its operating losses for 4Q2012 plummeted 954% to BRL358 million (USD177
million) and 270% for the full year 2012.
The airline recorded a negative 17% operating margin for the last three months of 2012 and a
negative 11% for the full year.
Gol financial highlights: 4Q2012 vs 4Q2011 and FY2012 vs FY2011
Source: Gol
45
Some of Gol’s negative results were attributed to added costs of BRL197 million that stemmed
from the shuttering of Webjet, a regional carrier Gol purchased in 2011.
Gol closed down Webjet’s operations in Nov-2012, folding the network into its larger domestic
offering. At that time Gol grounded Webjet’s 20 remaining Boeing 737-300 Classic
narrowbodies for pre-devolution maintenance.
As of 25-Mar-2013 Gol stated three of Webjet’s 13 remaining leased -300s had been returned to
lessors and the 10 remaining on lease should be returned by the end of 1H2013. Gol stated the
sale of six of the aircraft is currently under negotiation.
Gol's fleet as of 26-Mar-2012
Source: Gol
Capacity cutting leader in Brazil, reducing by 5.4% in 2012 - towards
sustainability
In an attempt to ease the effects of slower demand in Brazil Gol throughout 2012 continually
revised its domestic capacity estimates and ultimately cut domestic supply by 5.4% for the year,
eliminating 130 unprofitable flights from the combined Gol-Webjet network.
During a 26-Mar-2013 earnings discussion Gol management declared the company was the
capacity-cutting leader among Brazil’s largest carriers as domestic supply at Gol during 2012 fell
5.4% compared with a 1.1% cut at TAM and 32% growth at Azul and TRIP, two carriers in the
process of merging.
But Gol highlights that even Azul and TRIP, which have been growing rapidly during the last
few years, began to moderate their growth beginning in the Mar-2012-Apr-2012 timeframe,
which helped to drive just 2.7% ASK growth in Brazil’s domestic market, a marked decrease
from previous years.
Gol’s management is encouraged by the slower domestic capacity growth, as CEO Paulo
Kakinoff remarked, the capacity discipline introduced in the domestic market is an “important
sign that Brazil’s airline industry is underway to constructing a more sustainable environment”.
46
Brazil domestic year-over-year supply and demand growth: 2010 to Feb-2013
Source: Gol
Operating data for the Brazilian domestic market: 4Q2012 vs 4Q2011 and FY2012 vs FY2011
Source: Gol
47
Gol operating data: 4Q2012 vs 4Q2011 and FY2012 vs FY2011
Source: Gol
Gol believes its prudent capacity management helped to lay the foundation for a more stable
environment in Brazil during 2012 as its yields began to stabilise during 3Q2012 as capacity
rationalisation set in.
Gol's yields improved - but less than costs, inflated by the Webjet grounding
Its unit revenue growth also began to grow year-over-year in 2Q2012. But the improvements did
not cover the run-up in Gol’s unit costs, which excluding fuel and the charges related to the
grounding of Webjet’s fleet increased roughly 16% during 4Q2012, and 10% for the full year
2012.
Gol produced strong unit revenue growth year-over-year during 4Q2012 of 10.5%, and a decent
4.5% increase for the full year, but yields during 4Q2012 only increased 2.3% and 1% for the
year, indicating the capacity cuts were not at that point producing strong pricing traction in the
Brazilian domestic market. Some of the improvement in unit revenues is attributable to an
increase in Gol’s ancillary product sales, which on a unit revenue basis increased nearly 22% yearover-year during 4Q2012 and 11% for the full year.
Gol estimates revenues from its buy-on-board programme jumped 145% year-over-year during
4Q2012, and food for purchase is presently offered on about 50% of the carrier’s flights.
Gol has taken measures to reduce its unit costs including a 15% reduction in its workforce
(including Webjet), the grounding of Webjet’s less fuel-efficient 737-300s. Some network
changes that include improved connections could also contribute to cost reductions as a result of
potential improvement in turnaround times. Its championing of remote check-in, which reached
a rate of 12% during 2012, should also deflect some of its airport staffing costs.
Brighter prospects during early 2013, planning 10% revenue growth
48
During the first two months of 2013 Gol appeared to be reaping some benefits from its own
capacity discipline and the overall reigning in supply in the domestic market place. Its yields
grew 8% year-over-year in Jan-2013 and 17% in Feb-2013.
The carrier has a set a goal of 10% unit revenue growth during 2013 and positive margin growth
of 1% to 3%. It expects unit costs during 2013 to fall between BRL9.7 cents (USD4.8 cents) and
BRL10.3 cents, an improvement over the BRL17.38 cent unit cost Gol recorded during 2012.
Gol's yield performance: 4Q2011 to Feb-2013
Source: Gol
Mr Kakinoff buffered some of those projections by stating that the larger macroeconomic
environment remains uncertain, and that if Brazil’s GDP is lower than projections, then Gol
may need to revise its current revenue and cost guidance for 2013.
Gol is setting the bar high for a rebound, and will have far to fall if it fails
Gol’s aggressive capacity cutting during 2012 relative to its peers did result in the carrier ceding
market share to Avianca Brazil and Azul-TRIP, as Gol’s share of domestic traffic (including
figures from Webjet) fell 4ppt year-over-year to 39%; meanwhile Avianca Brazil saw its share
jump from 3% to 5% and Azul-TRIP recorded a 3ppt increase from 3% to 5%.
TAM’s share remained flat year-over-year at 41%. Capacity cuts at Brazil’s largest carrier were
not as deep as the reduction at Gol. TAM cut its ASK growth to about 1.1% year-over-year in
2012, but increased traffic by nearly 6%, which allowed it to raise its load factor by about 5ppt to
73.6%.
Despite putting specific numbers behind its pledge of an improvement in unit revenue and costs
during 2013, the reality is that Gol faces the same problems that triggered the weak performance
it turned throughout 2012 – high fuel costs, uncertain demand and currency issues. The carrier
has made some effort to diversify its network outside of the Brazilian domestic market, primarily
with service to Miami and Orlando in the US during late 2012 through a one-stop service in
Santo Domingo, Dominican Republic.
49
Gol is hoping to capitalise on better demand, and presumably better yields, that international
service to the US can deliver, but rival TAM and the largest carrier between the US and Brazil,
American Airlines, each offer direct service between Brazil and Florida, without the stopover.
Gol’s current schedule on its flights to the US also doesn’t allow for connections onwards to its
more extensive domestic network, and there are no connection opportunities for Gol in the US
beyond Miami and Orlando. But it seems as if Gol will attempt to stick it out with its less than
ideal US-Brazil offering as the carrier declined to offer system-wide capacity guidance for 2013
due to its negotiations to increase its routes operating over Santo Domingo, company officials
explained.
Gol is now more exposed than TAM to a slowing Brazilian economy
With TAM now firmly entrenched in LATAM and the joint company’s keen focus on
maximising network value, TAM is in a better position to successfully weather any further
deteriorating economic conditions in Brazil since its aircraft operating within the Brazilian
domestic sphere can be redeployed elsewhere. For that reason Gol is less shielded from the
effects of its smaller domestic competitors that, despite slowing their historically rapid growth,
will still continue expanding capacity.
Gol faces a tough climb during 2013 if it is to rebound from a dismal financial performance
during 2012. For the moment the number of sceptics of its plan are likely to outweigh the
believers as the circumstances that drove the carrier deeply into the red remain largely
unchanged.
While Gol’s management assures improvements are underway, and the costly Webjet
rationalisation is mostly out of the way, the carrier is placing its faith for a rebound in continued
prudent capacity management.
Gol’s plan is only executable if capacity rationalisation in Brazil continues. The prospect of
continued sensibility in the domestic market place is as difficult to predict as a time period of
when Gol will return to consistent profitability.
50
Variation in domestic supply among Brazil's three largest airline groups: 2010 to 4Q2012
Source: Gol
51
LATAM Group Key Data
Fleet and Orders
LATAM Fleet Summary: as at 10-Apr-2013
Aircraft
Total:
Airbus A318-100
Airbus A319-100
Airbus A320-200
Airbus A320-200NEO
Airbus A321-200
Airbus A330-200
Airbus A340-300X
Airbus A340-500
Airbus A350-900XWB
Boeing 737-700
Boeing 767-300ER
Boeing 767-300F
Boeing 777-300ER
Boeing 777F
Boeing 787-8
Boeing 787-9
Bombardier DHC-8-201
Bombardier DHC-8Q-201
Bombardier DHC-8Q-402
In Service
320
3
55
143
0
10
20
5
0
0
6
42
10
8
4
0
0
1
9
4
In Storage
5
0
0
0
0
0
0
0
2
0
0
0
0
0
0
3
0
0
0
0
On Order
201
0
3
52
42
47
0
0
0
27
0
3
0
4
0
19
4
0
0
0
Source: CAPA Fleet DatabaseSource: CAPA Fleet Database
LATAM projected delivery dates for aircraft on order: as at 8-Apr-2013
52
LATAM international capacity seats by region: as at 8-Apr-2013
Top routes table
LATAM top ten international routes by seats: as at 8-Apr-2013
53
LATAM schedule by class of seat - one way weekly departing seats: as at 8-Apr-2013
54
LATAM’s 4Q2012 yields are damaged by
aggressive competitive expansion in the USBrazil market
Competitive pressure in long-haul markets between the US and Brazil was a major driver in the
10.3% year-over-year decrease in yields during 4Q2012 for the powerful newly minted LATAM
Airlines Group, which is the combination of Brazil’s leading carrier TAM and South American
group LAN. The performance in long-haul markets is likely disappointing for the group as its
performance in Brazil’s cooling domestic market improved during the last three months of 2012.
In some ways the competitive pressure on long-haul markets from the US and Brazil will be
short-lived as TAM and American Airlines are working to forge a codeshare partnership that
will see the two historic rivals team up in the market now that LATAM has selected oneworld as
its alliance of choice. Once all the regulatory approvals for the tie-up are in place, TAM will be
able to benefit from onward connections in Miami and New York that it currently does not
enjoy. Based on current schedules in Innovata (24-Mar-2013 to 30-Mar-2013) TAM and
American presently account for 69% of the capacity between the US and Brazil.
Brazil to United States (seats per week, one way): 19-Sep-2011 to 15-Sep-2013
55
The decline in LATAM’s yields and corresponding 7% fall in passenger unit revenues were
mainly attributable competitive pressure in its international market. Both LATAM and its
international competitors introduced ample capacity on international routes as ASKs in
LATAM’s international network increased 13% year-over-year during 4Q2012.
LATAM Airlines Group change in select operating statistics: 4Q2011 vs 4Q2012
Source: LATAM Airlines Group
LATAM executives recently explained to analysts that both their company and other carriers
introduced excess capacity in international service, particularly in the US-Brazil market, noting
American and United added 16 weekly frequencies between the US and Brazil and LATAM’s
capacity between the two countries increased about 22% year-over-year during 4Q2012. The
result was carriers “becoming aggressive in their commercial conditions”, LATAM executives
explained, which created pricing pressure in the markets.
American’s during 2012 introduced direct flights from Miami to Manaus while also increasing
frequencies between Miami and Belo Horizonte and Brasilia. The carrier also expanded weekly
frequencies from Dallas to Sao Paulo.
TAM responded by increasing frequencies from Miami to Belo Horizonte and Brasilia. The
carrier also upgauged its Sao Paulo-Miami flights from 223-seat Airbus a330s to 362-seat
Boeing 777-300ERs, a seat expansion of roughly 63%. TAM also introduced service between
Rio de Janeiro and Orlando in Oct-2012, but later opted to cut the flight in early Apr-2013. It
service from Sao Paulo to Orlando remains intact.
LATAM executives assured that the company’s fortunes should improve on international service
between the US and Brazil during 3Q2013, noting that is the timeframe of when the carrier
expects to turn a positive result from the added capacity from Sao Paulo to Miami and New
York.
56
Company management also stressed that the planned codeshare with American Airlines, which
is subject to approval from Brazilian authorities, was a significant element of its international
network strategy going forward as the tie-up would allow TAM to improve connections at
American’s hubs in Miami and New York JFK. Presently, TAM is limited in its offerings
beyond those markets as its Star partner United has no presence in the robust Brazil-Miami
market and serves the New York metro area from its Newark hub.
Lima remains as key connection point in the combined LATAM network
LATAM has no plans to deter from building up its hub in Lima to build the market as a
stopover to connect passengers from North and South America. The company will leverage the
combined networks to funnel traffic through Lima. Now that the merger is complete LATAM
can flow traffic from Brazil through Lima as well as passengers from other important Southern
Cone markets of Argentina and Chile. Presently LATAM is focusing on changing flight times
to improve connections in Lima, said company officials.
While LATAM is keen to leverage its strength as Lima’s largest carrier, where it accounts for
about 53% of the seating capacity, the market’s second largest airline Avianca-TACA began
basing a widebody Airbus A330 jet in Lima during late 2012 to boost capacity between Lima
and Buenos Airs and its hub in Bogota. A second widebody will be placed in Lima in 2013 to to
expand capacity between Lima and Miami.
Lima J Chavez International Airport capacity by carrier (% of seats): 25-Mar-2013 to 31-Mar2013
Lima is rising to a position of prominence in the networks of both LATAM and AviancaTACA as means to partially compete with Panama, where Copa enjoys a strategic advantage of
connecting passengers between North and South America. Since both of Latin America’s largest
airline groups now plan to bolster their connection capabilities in Lima, competitive pressure for
57
both companies is likely to intensify in the short term as Avianca-TACA works to strengthen its
presence in the market and LATAM ensures its retains its commanding share.
A promising rebound in the Brazilian domestic market
Pressure in LATAM’s international markets during 4Q2012 was somewhat counter-balanced by
improvement in the company’s performance in the Brazilian domestic market, which was weak
throughout the majority of 2012. Although TAM’s 4.2% reduction during 4Q2012 in ASKs was
11.3ppt below the 15.5% cut ushered in by its main Brazilian domestic competitor Gol (partially
due to the shuttering of Gol’s subsidiary Webjet in Nov-2012), TAM’s traffic grew by nearly
12% while Gol recorded a 9% decline in its traffic. LATAM said it is working to improve
revenue management within the different passenger segments in the Brazilian domestic market,
with an emphasis on stimulating demand among price sensitive travellers.
LATAM predicts it will continue to improve its performance in the Brazilian domestic market
during 2013, and estimates a double-digit unit revenue increase year-over-year.
LATAM Airlines Group operating performance year-over-year in the Brazil domestic market:
Oct-2011 to Feb-2013
LATAM plans to reduce ASKs in the Brazilian domestic market by 5%-7% during 2013 as
company executives stressed that capacity discipline is key to regaining profitability in Brazil.
Gol’s planned capacity reduction is slightly more pronounced than its rival as it expects to cut
domestic ASK growth between 8% and 10% in 2013.
Both of Brazil’s largest carriers have declared that their fortunes in the domestic space will
improve during 2013. Gol has joined its rival in predicting that its unit revenues will rise by
double digits during 2013 and is encouraged that even smaller regional carriers including AzulTRIP and Avianca Brazil are slowing down their capacity growth.
58
Gol is encouraged that the domestic market will strengthen during 2013 as evidence by its 10%
unit revenue growth in Jan-2013 and a 14% year-over-year increase during Feb-2013. The
trends appear positive as the majority of Gol’s operations are centred in the Brazilian domestic
market.
LATAM’s 4Q2012 profits are hurt by integration charges
LATAM during 4Q2012 recorded a profit of USD8.5 million after recording USD21.9 million
from transaction expenses and USD52.7 million in aircraft sales and redelivery costs. Factoring
out those special items LATAM posted a USD115 million net profit even as revenues remained
roughly flat at USD3.4 billion.
LATAM Airlines Group financial results: 4Q2011 vs 4Q2012
Company executives estimate that LATAM should achieve USD250 million to USD300 million
in merger synergies during 2013, and the group remains on track to achieve its full USD600
million to USD700 million synergy target in 2016. However, the group will incur certain
integration expenses as it makes progress on its synergy goals.
There is also an evaluation under way of the combined carrier’s fleet plan in response to the
competitive and macroeconomic environment. Presently, the company’s projections indicate a
combined fleet of 323 aircraft by year-end 2013, a decrease of four shells from year-end 2012.
59
LATAM Airlines Group fleet projections: 2012 to 2015
LAN and TAM officially merged in Jun-2012, which means that the two companies are not
terribly far along in the process of maximising their respective fleets and networks to really
produce any meaningful results from the new LATAM Airlines Group. While there seems to be
some miscalculation in the reaping the benefits of spooling-up the US-Brazil market, there are
important pieces in place for LATAM to meet its synergy targets.
With Brazil’s domestic market improving, TAM’s jump from Star to oneworld and the
company’s leading position in Lima, benefits from the merger should surface in 2013. The usual
risks of high fuel prices, currency fluctuation and aggressive competition could continue to
pressure the group during 2013, but its heft and scope as the preeminent airline group in Latin
America puts LATAM in a strong position to weather potential obstacles that could pressure its
results.
60
VIVA Group Key Data
Fleet and Orders
VivaColombia Fleet Summary: as at 10-Apr-2013
Aircraft
Total:
Airbus A320-200
In Service
5
5
In Storage
0
0
On Order
0
0
VivaAerobus Fleet Summary: as at 10-Apr-2013
Aircraft
Total:
Boeing 737-300
In Service
20
20
In Storage
0
0
On Order
0
0
Viva Group international capacity seats by region: as at 8-Apr-2013
61
Top routes table
VivaColombia top ten international routes by seats: as at 8-Apr-2013
VivaAerobus top ten international routes by seats: as at 8-Apr-2013
62
Viva Group schedule by class of seat - one way weekly departing seats: as at 8-Apr-2013
63
VivaAerobus and VivaColombia focus on
domestic expansion as Irelandia ponders third
Viva franchise
VivaAerobus and VivaColombia are planning further expansion in the Mexican and Colombian
domestic markets in 2013 while they remain separate entities without any network or operating
synergies. But the two low-cost carriers could start exploring a closer partnership in 2014 as
VivaAerobus looks to potentially join VivaColombia as an A320 operator and launch services to
other Latin American countries.
Meanwhile, Irish investment firm Irelandia Aviation, which owns stakes in VivaAerobus and
VivaColombia, continues to study establishing a third Viva affiliate in a new Latin American
market. With the Viva brand already established in Colombia and Mexico, and as the Brazilian
market is currently over-saturated, smaller Latin American markets that lack any local LCCs are
being studied. The Viva group could ultimately consist of several LCCs, with most of the
carriers being small in size but enjoying economies of scale by being part of a pan-Latin
American group.
Irelandia expected to remain with VivaAerobus after IPO
VivaAerobus is the original Viva, having launched services in 2006 with investment from
Irelandia and Mexican bus company IAMSA. Irelandia, led by former Ryanair director Declan
Ryan, has remained with VivaAerobus for over six years despite the carrier struggling at times.
Unlike its previous investments, Irelandia intends to stay invested in VivaAerobus after the
carrier’s planned initial public offering (IPO), which highlights the firm’s commitment to
continue developing the LCC market in Latin America. Irelandia decided to exit its investments
in Singapore’s Tiger Airways and Las Vegas-based Allegiant Air following IPOs. Irelandia is
now left with stakes in just two airlines – VivaAerobus and VivaColombia – and continues to
scour the market for new opportunities in Latin America as well as other emerging markets.
VivaAerobus and VivaColombia both have IPO strategies. But it is logical for VivaAerobus to
go first as VivaColombia, which is also owned by IAMSA and Colombian partners along with
Irelandia, only launched services in May-2012. VivaColombia chairman and part-owner Juan
Emilio Posada told CAPA in Nov-2012 that its “IPO strategy is less urgent” and is “to be
refined” as the carrier develops.
VivaAerobus is aiming to have its IPO on the Mexican Stock Exchange in 2013, hoping to use
the proceeds to accelerate expansion. But the timing is contingent on market conditions.
Mexican LCCs Interjet and Volaris also have IPO strategies and have stronger positions in the
Mexican market, which could impact investor appetite for VivaAerobus. Interjet failed in its
original attempt for a listing on the Mexico Stock Exchange during tough market conditions in
2011 but plans to ultimately make a second attempt.
64
The aborted IPO at Interjet in Jun-2011 followed a successful IPO at the Aeromexico Group in
Apr-2011. The IPO at Aeromexico would likely not have been possible without the collapse of
Mexicana in 2010, which left Aeromexico as Mexico’s only full-service carrier and significantly
improved the outlook of Aeromexico as well as Mexico’s three LCCs.
VivaAerobus has had mixed success in its first six years
VivaAerobus struggled through most of its early years as Mexico’s two other surviving LCCs,
Interjet and Volaris, have expanded more rapidly. VivaAerobus currently operates a fleet of about
20 ageing 148-seat 737-300s while rival Interjet and Volaris each now operate a fleet of about 40
new A320 family aircraft. VivaAerobus accounts for a 13% share of Mexico’s domestic market,
compared to 24% for Interjet, 20% for Volaris and 38% for the Aeromexico Group, based on
passenger data for Nov-2012 from Mexico’s DGAC.
VivaAerobus also competes with Interjet and Volaris in the Mexico-US transborder market but
has struggled to gain a foothold in the US. The carrier currently only serves two destinations in
the US, compared to five a year ago. It has tried and failed in several transborder routes over the
years, having initially launched services to Austin in Texas from multiple Mexican destinations in
2008. VivaAerobus beat Volaris to the US market by one year and Interjet by four years but it is
now by far the smallest Mexican carrier in the transborder market with a meagre 0.4% share of
total capacity between the two countries.
VivaAerobus, however, has succeeded in that it survived while two other LCCs that launched at
about the same time as the Mexican market de-regulated – Avolar and ALMA – failed. The
carrier also has succeeded at opening several new point-to-point domestic routes which were
previously un-served.
VivaAerobus has always followed the Ryanair model, primarily operating low frequency pointto-point routes and trying to stimulate demand in un-served or under-served city pairs through
very low fares. It is a pure LCC model, purer than the model used by Volaris and much purer
than the model used by Interjet, which targets business and upmarket leisure traffic with low
density configuration 150-seat A320s.
VivaAerobus is largest LCC in Monterrey and has niche operation in Mexico City
While smaller than Mexico’s other LCCs, VivaAerobus has built up a niche and gained traction
in the dynamic Mexican market, particularly at its Monterrey headquarters. VivaAerobus now
operates 20 domestic and two international routes from Monterrey, including nine low frequency
routes that are not served by other carriers, according to Innovata data.
VivaAerobus currently has about a 31% share of domestic capacity at Monterrey, second only to
the Aeromexico Group’s 33% share. Monterrey is Mexico’s fourth largest airport after Mexico
City, Cancun and Guadalajara.
Like Volaris and Interjet, VivaAerobus also has benefitted from the collapse of Mexicana and
Mexicana LCC subsidiary Click in Aug-2010. VivaAerobus’ original strategy was to bypass
Mexico City with point-to-point routes, but the carrier adjusted this strategy in early 2010 and
entered the Mexico City market. As a result of Mexicana’s collapse slots became available so
VivaAerobus was able to rapidly expand its Mexico City operation.
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VivaAerobus operates 14 domestic routes from its Mexico City base (including seasonal services)
and currently accounts for 6% of domestic capacity at Mexico City compared to about 15% for
Volaris and 29% for Interjet. While a modest operation, VivaAerobus has been able to build up
meaningful presence at the capital serving niche routes such as Puerto Escondido (only served by
turboprop operator Aeromar) as well as high frequency trunk routes to its Monterrey and
Guadalajara bases.
The carrier’s four largest routes are now at Mexico City – Monterrey, Cancun, Reynosa and
Guadalajara. Mexico City is now the second largest of VivaAerobus’ three bases, smaller than
Monterrey but larger than Guadalajara.
VivaAerobus top 10 hubs/bases/stations based on weekly seat capacity: 07-Jan-2013 to 13-Jan2013
VivaAerobus top 10 routes based on weekly seat capacity: 07-Jan-2013 to 13-Jan-2013
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VivaAerobus opened its Guadalajara base in 2009 and now operates 12 domestic routes from the
city. But as is the case with Mexico City VivaAerobus remains the fourth largest carrier in
Guadalajara, accounting for 15% of domestic capacity.
VivaAerobus plans new base in Cancun as domestic capacity surges in 2Q2013
VivaAerobus is planning to open a fourth base in Jun-2013, Cancun, which is currently the
carrier’s fourth largest destination. VivaAerobus now has seven domestic routes at Cancun, four
of which are served less than daily. The additional base, which reportedly will initially include
four 737-300s, will allow VivaAerobus to better serve its Cancun routes and open up potential
new destinations from the beach resort.
Cancun also has seen growth from Volaris over the last year as both Volaris and VivaAerobus
have been focusing on stimulating a growth in demand to beach destinations. Volaris, like
VivaAerobus, plans to focus capacity expansion on Mexico’s domestic market in 2013, which
grew by about 11% in 2012 and will likely record double digit growth again in 2013. Volaris sees
the US-Mexico market, which is dominated by US carriers as US carriers account for over 75%
of capacity in the transborder market, as more challenging while there are plenty of domestic
opportunities, particularly in the discretionary travel sector as more and more bus passengers are
persuaded to fly.
VivaAerobus for at least the short-term will likely only retain a small niche presence in the US
market although it will look at more rapid US growth in 2014 and beyond. Domestic growth in
1H2013 will focus entirely or almost entirely on existing routes. VivaAerobus has not launched a
new route since Jul-2012, when it added service to Cuernavaca from Cancun and Monterrey. It
also has not yet announced any new routes for 2013, which indicate the carrier is focusing on
adding capacity to existing routes through at least the first few months of the year.
The carrier plans to offer a consistent 107,000 weekly seats in 2Q2013 (including 105,000
domestic seats), up about 26% from current capacity levels, according to Innovata data. Most of
the capacity increase will be allocated to its Monterrey hub, where it will offer about 53,000
weekly domestic seats compared to about 39,000 currently.
VivaAerobus weekly seat capacity: 07-Jan-2013 to 30-Jun-2013
Source: CAPA - Centre for Aviation & Innovata
VivaAerobus will also temporarily increase
capacity over the Easter holiday in late
Mar-2013 to about 120,000 domestic
weekly seats. The carrier’s model of
operating older aircraft give it the
flexibility to utilise its fleet less during
quiet months and spool up capacity during
peak periods. Ryanair, which now parks a
large portion of its fleet during the quiet
winter months, and Allegiant, which
Irelandia previously had an investment in,
follow similar strategies.
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VivaAerobus and VivaColombia expected to eventually operate common fleet
VivaAerobus may have to adjust this strategy in 2014, when the carrier plans to start phasing out
its 737-300s. VivaAerobus is currently evaluating new aircraft options and will most likely opt
for second-hand A320s, which was the selection VivaColombia made in 2011 during its prelaunch phase.
Having both Viva carriers operating the same type will allow for synergies and cost savings in
such areas as maintenance, spare parts and training. The two carriers may also place a joint order
for new-generation aircraft, most likely the A320neo, which would replace the current
generation A320s as they come off lease at VivaColombia and potentially VivaAerobus.
VivaAerobus envisions ultimately operating 50 aircraft, with proceeds from its IPO helping to
fund the expected fleet renewal and expansion
While it will focus on domestic growth in 2013, VivaAerobus plans to look at international
expansion in 2014 both in the Mexico-US transborder market and to Latin America.
Southbound services to Central America and South America, including Colombia, are likely as
the carrier looks to promote the Viva brand in the region.
VivaColombia to focus on domestic market for the short to medium term
VivaColombia also eventually plans to expand into the international market but will stay entirely
domestic-focused for at least 2013 and likely 2014. Mr Posada stated that while international
destinations are in VivaColombia's five-year plan it is in no hurry to operate internationally and
will not expand into the international market purely for exposure.
He pointed out that international flights are always more expensive as operating costs and taxes
are higher. For example a flight from Colombia to a Caribbean destination is 60% more
expensive than a similar length domestic flight to Santa Marta, a city on Colombia’s Caribbean
coast. “We want to be very disciplined and operate the most profitable routes,” Mr Posada
explains. “The glamour of flying international is not part of our DNA.”
VivaColombia prefers its customers to take two domestic trips instead of one international trip as
its model is to stimulate frequent travel with “ridiculously low fares” and then profit off ancillary
sales. If passengers pay less for their tickets in theory they have more to spend on more frequent
travel and on ancillaries when on board.
Mr Posada said the carrier also wants to remain flexible when it comes to growing its fleet. It
now operates five A320s, which is the minimum number of aircraft required for Colombian
carriers. A sixth aircraft will likely be added at some point in 2013 but Mr Posada said the carrier
is now focusing on consolidating its current five-aircraft operation. He said VivaColombia is an
opportunistic acquirer of aircraft, similar to the aircraft acquisition strategy at VivaAerobus, and
while it has a five year fleet plan it is “not anchored to a specific schedule”.
VivaColombia should capture a 10% share of Colombia’s domestic market in 2013
VivaColombia carried 400,000 passengers in its first six months of service and about 500,000
passengers in 2012. The carrier aims to carry two million passengers in 2013. Based on a
projected domestic market of about 20 million passengers in 2013, VivaColombia should capture
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approximately a 10% share of the domestic market this year. In Oct-2012, the last month the
Colombian CAA reported traffic data, VivaColombia flew 85,000 passengers, giving it a 5%
share of Colombia’s domestic market.
Through the first 10 months of 2012, domestic passenger traffic in Colombia was up 15% to 15
million. More double-digit growth is likely in 2013 as VivaColombia continues to build up its
operation.
As the only LCC in a fast-growing market, there are huge opportunities to stimulate demand.
While VivaColombia has entered some trunk routes such as Medellin-Bogota, it has taken a
similar approach to its sister carrier in Mexico and opened several routes which were previously
under-served or not served at all. In several cases flag carrier Avianca has responded by launching
the same route and matching VivaColombia’s fares but Mr Posada said the result is that these
markets have grown significantly with all carriers transporting more passengers.
VivaColombia in Dec-2012 stated there has been 185% passenger traffic growth on the routes it
operates while routes it doesn’t operate have only grown by 5%. According to Colombian CAA
data for Oct-2012, the Bogota-Medellin trunk route that VivaColombia serves saw a 36%
increase in traffic while Bogota-Barranquilla, a trunk route VivaColombia has not yet entered,
traffic was up by only 5%. Not surprisingly the impact on smaller point-to-point routes has been
more pronounced with passenger traffic up in Oct-2012 by 294% on Cartagena-Medellin, 187%
on Cali-Medellin, 183% on Barranquilla-Medellin and 162% on Santa Marta-Medellin.
VivaColombia currently serves 10 destinations. Over 80% of its capacity is allocated to its only
base in Medellin, which accounts for its seven largest routes. But the carrier also operates several
point-to-point routes bypassing Medellin and will eventually look to establish a second base.
VivaColombia top 10 hubs/bases/stations based on weekly seat capacity: 07-Jan-2013 to 13Jan-2013
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VivaColombia top 10 routes based on weekly seat capacity: 07-Jan-2013 to 13-Jan-2013
VivaColombia has had to make some network adjustments, discontinuing some of its initial
routes, and encountered reliability issues in its first few months. But the carrier’s on-time
performance has improved in recent months and Mr Posada stated that financially “all
indications are performing better than the business plan”.
As Latin America’s third largest market after Brazil and Mexico, Colombia has plenty of
opportunities for growth for all carriers despite the intense competition. The country’s economy
and middle class is growing rapidly, creating ideal market conditions particularly for LCCs but
also for the three main full-service carriers – Avianca, LAN Colombia and Copa Colombia.
According to VivaColombia, 94% of Colombia’s 34 million people have never flown before but
the carrier’s low fares and point-to-point routes are starting to give people an option to buses and
increase the first time flier population. Mexico went through a similar movement after the
launch of VivaAerobus and Volaris and before that Gol started a new trend in Brazil, where
there are now more domestic air passengers than interstate bus passengers.
Infrastructure and congested airports is a huge challenge in Colombia but VivaColombia’s focus
on point-to-point routes that bypass Bogota should allow the carrier to grow until the situation
in Bogota improves. Given the 100 aircraft that Mexico’s LCC industry is now supporting, it is
not unfathomable to think that VivaColombia could at one point join VivaAerobus in operating
a 50 aircraft fleet, particularly if it is Colombia’s only LCC.
Viva has potential franchises in Ecuador, Peru and Central America
Viva as a group is now tiny, accounting for only 7% of total LCC capacity within Latin
American. But the seeds are there for a much bigger group as Latin America has a need for more
LCCs.
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With the recent consolidation in Brazil, which has seen Gol acquire Webjet and Azul acquire
TRIP, there are now only six LCCs in all of Latin America. VivaAerobus and VivaColombia are
the smallest carriers in this group, which also includes Gol, Azul, Volaris and Interjet.
Virtually all of the region’s LCC capacity is allocated to just thee markets – Brazil, Mexico and
Colombia. While two of Latin America’s other big markets are off-limits for political reasons to
LCCs, Argentina and Venezuela, there are several smaller markets which could support smaller
LCCs that are part of a bigger group. In these markets, such as Ecuador and Peru, it would be
challenging for an independent LCC to carve out a sustainable niche but more feasible if the
LCC is part of a group or umbrella.
There is currently not a single LCC operating to or within Ecuador. In Peru the LCC
penetration rate is 0.1% as there is only one LCC operating one route once a week (Spirit
Airlines from Fort Lauderdale). Both markets, particularly larger Peru, have been growing
rapidly in recent years. Peru also has a modest size domestic market with four full-service
carriers. Colombia is also a large international market for both Ecuador and Peru, presenting
synergy opportunities between VivaColombia and a potential VivaEcuador and or VivaPeru.
Central America also presents potential opportunities for Viva. The intra-Central America
market has extremely high fares as it is dominated by TACA and Copa.
Central America consists of seven small countries but has a common market across five countries
(Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua) permitting any airline from
these countries to connect any two countries. As a result, there is potentially enough demand to
support a LCC in one country that serves the entire region. There are only very limited domestic
markets in Central America but the region as a whole when combined presents a reasonably
sized regional market that currently consists of over 100,000 weekly seats and could be
significantly larger through low fare stimulation.
Costa Rica, the largest of the Central American markets, would be the most logical country for a
local LCC. Costa Rica has a LCC penetration rate of 9%, which is significantly higher than the
LCC penetration rate in other Central American countries. But all the LCCs serving Costa Rica
come from North America including Mexico. There are no LCC services linking Costa Rica
with other Central American countries or South America. There are only two LCC routes that
connect a Central American destination with another destination in Latin America (Interjet
from Mexico City to San Jose in Costa Rica and Guatemala City). The potential is enormous
and Viva could be the solution.
The emerging Viva group has big ambitions under Irelandia
Irelandia has a team led by ex-Tiger CEO and Irelandia partner Tony Davis looking at potential
LCC opportunities in Latin America. Mr Davis has experience with the pan-regional group
LCC model in Asia, a model that could potentially be adopted to unlock the LCC potential of
Latin America’s still untapped markets. As CAPA’s airline strategy journal Airline Leader
reported in Nov-2011:
The cross-border LCC model pioneered in another emerging market, Asia, offers an
enticing alternative for several of the Latin American markets not yet penetrated by
LCCs. Malaysia-based AirAsia and Australia-based Jetstar have expanded and
71
continue to pursue further expansion by launching new affiliates or joint ventures with
local partners. While technically separate entities from a regulatory perspective, the
affiliates leverage the powerful brand of their partner and enjoy several important
synergies such as common fleet, IT systems and websites. As more affiliates are launched,
access to new domestic markets is gained and more dots within the region can be
connected, resulting in a pan-regional network.
Mexico’s VivaAerobus and its two major shareholders, the Ryan family-backed
investment firm Irelandia Aviation and Mexican bus company IAMSA, have emerged
as the first group ready to test out the cross-border LCC model in Latin America ... Viva
could quickly emerge as a large pan-Latin America player, as all of the other low-cost
carriers in the region are now entirely focused on their home markets. Irelandia, led by
Declan Ryan, clearly sees the opportunity to strike first in virgin LCC markets
throughout Latin America. With the iconic Ryan family as major shareholders in the
Mexican and Colombian affiliates, Viva is well positioned to establish ventures across
the region and become the first pan-Latin America LCC brand.
With all of Latin America’s other LCCs focused entirely on their home markets of Mexico and
Brazil, Viva could have first mover advantage in establishing LCCs in the rest of Latin America.
There will be challenges, as there was initially in Asia. But it is just a matter of time before the
challenges are overcome and the LCC revolution spreads to the rest of Latin America. Irelandia
could be in the driver seat.
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Brazil Key Data
Fleet and Orders
Brazil projected delivery dates for aircraft on order: as at 8-Apr-2013
Brazil capacity seats per week by carriers: as at 8-Apr-2013
73
Top routes table
Brazil top ten international routes by seats: as at 8-Apr-2013
Seats share
Brazil capacity seats share by alliance: as at 8-Apr-2013
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Brazil domestic growth slows in 2012 as AzulTRIP continues to take market share from Gol
Domestic RPK growth in Brazil slowed to 6.8% in 2012, after growth of 15.9% in 2011 and
23.5% in 2010, and will likely remain in the single digits in 2013 as the country’s two major
carriers continue to reduce capacity in response to challenging market conditions. But Brazil’s
two other main domestic players, the new Azul-TRIP group and Avianca Brazil, will continue to
expand and take market share away from the leading TAM and Gol groups.
Azul-TRIP and Avianca Brazil have each seen market share gains of between 2 and 3ppt over
the last year. Their gains have come at the expense of Gol, which has been cutting capacity and
struggling financially after acquiring smaller low-cost carrier Webjet. Gol saw its share of the
domestic market slip by about 4ppt in 2012 while TAM has been able to keep its share relatively
stable despite reducing capacity by lifting its load factors.
Azul-TRIP market share reaches 15% as merger progresses
Azul, which unveiled plans in May-2012 to merge with TRIP, captured a 14.5% share of the
Brazilian domestic market in 2012, according to newly released RPK figures from Brazil’s
ANAC. This includes a 10% share from Azul and 4.5% share from TRIP. Azul and TRIP
combined captured only 11.8% of RPKs in Brazil’s domestic market in 2011, when they were
still separate independent carriers.
Brazil domestic market share (% of RPKs) by carrier: 2012 versus 2011
Source: CAPA – Centre for Aviation and Brazil's ANAC
Note: *Gol figures include Webjet and Azul figures include TRIP. For comparison purposes these figures are
combined for entire period.
Azul and TRIP in Nov-2012 received conditional preliminary approval from Brazilian anti-trust
authorities to proceed with their planned merger. The carriers have already moved to a single
reservation system and sales channel and have begun the process of integrating their operations
under the Azul brand.
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The two carriers currently operate over 120 aircraft and serve a network of about 100
destinations, giving the new group the largest network in the Brazilian industry.
Both Azul and TRIP have been growing quickly in recent years and continue to take delivery of
additional Embraer E-Jets and ATR 72s at a rapid clip. Azul recorded 25% RPK growth in 2012
on a 27.9% increase in ASKs while TRIP recorded 47.2% RPK growth on a 41.1% increase in
ASKs.
TRIP traditionally has had the lowest load factors in the Brazilian industry while Azul has had
some of the highest load factors since the LCC launched services in Dec-2008. While Azul’s
load factor in 2012 slipped below 80% for the first time since 2009, to 79.3%, it was only .1ppt
below load factor leader Avianca Brazil. TRIP saw its load factor improve from 65.2% to 68%,
which is still the lowest among Brazil’s major carriers but the merger with Azul should lead to
higher load factors across the TRIP network.
Azul annual domestic RPKs, 2009 to 2012
Source: CAPA – Centre for Aviation and Brazil’s ANAC
Azul annual domestic load factors, 2009 to 2012
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TRIP annual domestic RPKs, 2008 to 2012
TRIP annual domestic load factors, 2008 to 2012
Azul and TRIP will continue to grow in 2013 albeit at a slightly slower clip. In the most recent
month, Dec-2012, the duo grew RPKs by 10% and captured exactly a 15% share of the market.
As Azul-TRIP continues to expand and as larger Gol and TAM continue to cut capacity, the
Azul-TRIP market share could approach the 20% mark by the end of 2013.
Only four years ago, in 2008, TRIP captured a 2.5% share of Brazil’s domestic market while a
just-launched Azul captured less than 0.1%. In 2009, the two carriers combined captured only a
5.3% share.
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Azul and TRIP monthly domestic market share (% of RPKs): Jan-2010 to Dec-2012
Azul and TRIP monthly domestic RPKs: Jan-2010 to Dec-2012
Avianca Brazil market share reaches record high
Older full-service carrier Avianca Brazil also has seen its market share rapidly increase since
slipping under 3% in 2009 following a restructuring. Avianca Brazil, formerly known as
Oceanair, resumed growth in 2010 and pursued even faster growth in 2012.
Avianca Brazil captured 5.4% of Brazil’s domestic market in 2012, the highest ever figure for the
carrier, compared to 3.2% in 2011. The carrier’s RPKs were up 82.3% compared to 2012. ASKs
were also up 82.3%, resulting in an impressive 79.4% load factor for the second consecutive year.
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Avianca Brazil is planning to slow down expansion in 2013 and keep the size of its fleet roughly
flat after nearly doubling in size over the last two years from 18 to 34 aircraft. But Avianca Brazil
is still expecting capacity growth of 33% in 2013 as much of the fleet expansion in 2012 occurred
in the latter portion of the year.
As a result, Avianca Brazil’s share of the domestic market should reach 7% in 2013. Already in
Dec-2012 the carrier’s market share had risen to 6.5%.
Avianca Brazil monthly domestic RPKs: Jan-2010 to Dec-2012
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Avianca Brazil monthly domestic market share (% of RPKs): Jan-2010 to Dec-2012
Gol continues to lose market share despite acquisition of Webjet
TAM has been able to maintain its status as Brazil’s largest domestic carrier despite Gol’s
purchase of Webjet. After Gol initially unveiled plans in mid-2011 to acquire Webjet it appeared
the Gol group would again leapfrog past TAM. But Gol, which was briefly the market leader in
2009 before losing that status to TAM in 2010, spent 2012 in cost and capacity cutting mode in
a bid to return to profitability.
Over the course of 2012 Gol several times revised downwards capacity plans for the year. At the
end of Nov-2012 it shut down Webjet and moved the remaining Webjet fleet to Gol.
In Dec-2012, the first month Webjet didn’t report separate traffic figures as it was no longer
operating, Gol captured 34.4% of Brazil’s domestic market. In Dec-2011, Gol captured 35.1%
while Webjet captured 5.9%. As a result the group has seen its market share slip year-over-year
by almost 7ppt from 41% to only 34.4%.
For the full year, Gol and Webjet combined captured a 38.7% RPK share in 2012 compared to a
43% share in 2011. Back in 2009 the two LCCs combined captured a 46% share.
The Gol group will likely see its market share slip below 35% in 2013 as it continues to cut
capacity. The carrier has said its capacity will be down between 5% and 8% in 1H2013 as the
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737-300 fleet previously operated by Webjet will be phased out, leaving the group with a smaller
fleet consisting entirely of 737NGs.
Gol’s capacity was down by 5.4% in 2012 while capacity at Webjet was down by 5.7%. Gol’s
domestic RPKs were down by 3.3% in 2012, leading to a slight improvement in load factor to
70.4% but Webjet’s load factor dropped slightly to 73.2% as its RPKs declined by 7.6%.
In Dec-2012, the first month without Webjet, capacity at the Gol brand was down by 9.5%. But
when looking at the figures from a group perspective, capacity was down year-over-year by a
sharp 21%.
Gol annual domestic RPKs, 2008 to 2012
Note: excludes Webjet
Gol and Webjet domestic monthly RPKs: Jan-2010 to Dec-2012
Note: No Webjet figures for Dec-2012 as Webjet ceased operation at the end of Nov-2012
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TAM capacity discipline pays off
TAM also has shown capacity discipline over the last year and continues to cut its domestic
operation. But it has had success in significantly increasing load factors which has allowed the
carrier to maintain its market share and lead position.
TAM was able to increase domestic RPKs by 5.9% in 2012 despite cutting domestic ASKs by
1.1%. As a result it was just about able to keep up with the overall industry growth of 6.8% while
raising its domestic load factor by nearly 5ppt from 68.8% to 73.6%. TAM’s market share
slipped only 0.4ppt from 41.2% in 2011 to 40.8% in 2012 – an impressive achievement given the
aggressive expansion at Azul, TRIP and Avianca Brazil.
In Dec-2012, TAM saw its domestic market share grow by 3.2ppt year-over-year from 40.5% to
43.7% despite a 3.7% reduction in ASKs as its RPKs were up 10.5% and its load factor soared by
over 10ppt to 81.9%. This is a positive sign for TAM going into 2013 and shows the carrier
should be able to keep its market share near the 40% mark in 2013 despite further capacity cuts.
TAM has said it plans to cut capacity by 7% in 2013.
TAM continues to dominate Brazil’s international market
TAM’s outlook is also much brighter than Gol as the carrier has a much bigger international
operation. Demand for international services in Brazil, particularly to and from the US, remains
relatively strong. Competition is less intense in international markets and on many routes
demand is currently exceeding supply. The US is TAM’s main long-haul market and currently
accounts for 43% of its international ASKs and 34% of its international seats, according to
Innovata data. Currently TAM allocates 41% of its ASKs and 12% of its seats to the
international market while Gol only allocates 12% and 5%, respectively. Gol and TAM are the
only scheduled Brazilian international carriers as Avianca Brazil dropped its only international
route, Sao Paulo-Bogota, in 2012 while Azul currently does not operate scheduled international
services.
TAM captured 89.4% of Brazil’s international market (includes only Brazilian carriers) in 2012,
compared to 88% in 2011, based on ANAC international RPK data. TAM’s international RPKs
were up 1.9% in 2012 on a modest 2.2% increase in capacity as the carrier’s international load
factor dropped 0.2ppt to 81.3%. Gol captured only 10.3% of Brazil’s international market in
2012, compared to 10.6% in 2011. Its international capacity for the year dropped 4.9% while
RPKs dropped 2.5%. Gol, however, has been growing its international operation in recent
months, including launching scheduled services to the US in Dec-2012.
In Dec-2012, Gol’s international ASKs were up 13.9% and this trend is expected to continue
into 2013 as Gol starts to focus more on the international market given the challenges
domestically. But Gol will need to improve its international load factor, which slipped to 55.4%
in Dec-2012 and was only 64.2% for the full year. Gol faces a challenging 2013 as it continues to
restructure. Conditions in Brazil’s domestic market, which Gol relies on more heavily than
TAM, remain far from ideal and have cooled significantly since 2011.
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The era of high double-digit growth is gone but there are still plenty of
opportunities
Brazil, which is currently the world’s third largest domestic market after the US and China,
recorded 15.9% domestic RPK growth in 2011, 23.5% growth in 2010 and 17.7% in 2009. The
return in 2012 to single-digit growth for the first time since 2008, when RPK growth of 7.4%
was recorded, is not surprising given the total domestic market has nearly doubled in size in only
five years from 44 million RPKs in 2007 to 87 billion RPKs in 2012.
Brazilian industry monthly domestic RPKs and ASKs: Jan-2000 to Dec-2012
Source: Brazil’s ANAC
There was bound to be a slowdown at some point given the huge capacity that the market has
had to absorb in the post-Azul era. Brazil’s LCCs have already succeeded at persuading a
majority of interstate bus passengers to take to the skies, leading to a huge increase in the portion
of Brazil’s 200 million population that flies.
Economic growth, particularly in Brazil’s middle class, has led to higher discretionary incomes,
fuelling the huge growth in domestic travel since 2008. But there is a limit to the new sources of
consumer spending and the growth in discretionary income. Brazil’s GDP growth in 2012
dipped below 2%, marking a further reduction after GDP growth slowed from 7.5% in 2010 to
2.7% in 2011. GDP growth is expected to remain a relatively moderate 3% in 2013.
The impact of the cooling economy has particularly been felt on trunk routes, leading to the cuts
at TAM and Gol. Secondary markets and point-to-point routes continue to see relatively faster
growth in demand as these markets are less mature. Given their focus on secondary markets and
point-to-point routes that bypass Brazil’s congested major airports, further capacity increases at
Azul-TRIP should be absorbable. Gol and TAM are hoping their continued capacity restraints
will lead to higher load factors and yields and therefore profitability while Avianca Brazil also
starts to slow down capacity growth in hopes of becoming profitable.
Brazil remains one of the world’s largest emerging markets and there are huge opportunities for
carriers of all types. The consolidation the industry has seen over the last couple of years, leaving
four major players that account for 99% of the market, should help lead to the restoration of
profitability and a relatively bright medium to long-term outlook.
While 2013 will likely see growth in Brazil’s dynamic aviation market stay in the single digits for
the second consecutive year, double-digit growth could resume in the medium-term. A return of
growth in the 15% to 25% range as seen in 2009 to 2011 is unlikely but such huge growth is not
always healthy – for airlines and for infrastructure, which in Brazil is now buckling as the country
struggles to get ready for the 2014 World Cup and 2016 Olympics.
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Chile Key Data
Fleet and Orders
Chile projected delivery dates for aircraft on order: as at 8-Apr-2013
Chile capacity seats per week by carriers: as at 8-Apr-2013
84
Top routes table
Chile top ten international routes by seats: as at 8-Apr-2013
Seats share
Chile capacity seats share by alliance: as at 8-Apr-2013
85
Chile emerges as Latin America’s fastest
growing market despite domination from LAN
Chile has recorded 17% passenger growth for the second consecutive year, making it the fastest
growing market in Latin America. The rapid growth in Chile is somewhat surprising as it is one
of the more mature markets in Latin America and the market is dominated by one player, LAN,
which can have a stifling impact on competition. But the small country of 17 million continues
to support rapid increases in travel propensity, which is already the highest in Latin America,
driven by a strong economy and Chile’s unusual geography.
After recording flat traffic figures for 2009, Chile’s aviation market has grown by 57% over the
last three years to 15.2 million passengers, according to Chilean Civil Aeronautics Board data.
Growth in 2011 and 2012 was an impressive 17% while 2010 ended with 11% growth despite
the impact of a devastating earthquake which struck Santiago in Feb-2010.
Chile monthly systemwide passenger traffic and growth: Jan-2010 to Dec-2012
Source: Chile’s CAB
Chile annual passenger traffic (millions) and year-over-year growth (%): 2009 to 2012
Chile has Latin America’s fourth largest and fastest growing domestic market
Chile’s domestic market has grown by 63% over the last three years from 5.1 million passengers
in 2009 to 8.3 million passengers in 2012. The international market has grown only slightly
more slowly, increasing by 47% from 4.7 million passengers in 2009 to 6.9 million passengers in
2012.
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Chile now has the fourth largest domestic market in Latin America, smaller than only the much
more populated countries of Brazil, Mexico and Colombia. It has a bigger domestic market than
three other more populated South American countries – Argentina, Peru and Venezuela.
Passenger growth in Latin America’s six largest domestic markets: 2012 vs 2011
Source: CAPA – Centre for Aviation, Brazil’s ANAC,
Mexico’s DGAC, Colombia’s CAA, Chile’s CAB and
Aeropuertos Argentinas 2000
*Note: Mexico, Peru and Colombia data is for the first
11 months of 2012 because full-year 2012 data is not
yet available. For Brazil, Chile and Argentina data is
for the full year. All data comes from civil aviation
authorities except for Argentina in which case the data
comes from the country’s privately-owned airport
operator.
Argentina, which has more than twice the population of neighbouring Chile, had six million
domestic passengers in 2012, according to data from airport operator Aeropuertos Argentinas
2000. Peru, which is about 70% more populous than Chile, had 6.6 million domestic passengers
through the first 11 months of the year, according to Peruvian DGAC data. Full year data is not
yet available but Peru most likely ended 2012 with 7.2 domestic passengers.
The relatively large domestic market in Chile is a reflection of Chile’s high spending power as it
has the highest GDP per capita in Latin America – about USD17,000. Chile’s very long and
narrow shape, which spans 4,300km from the desert by the Peruvian border to Antarctica, also
makes it a natural aviation market.
LAN accounts for more than 75% of Chile’s domestic market
Chile’s carriers are confident the domestic growth spurt seen over the last three years – which
included 18.6% in 2012, 17.6% in 2011 and 18.1% in 2010 – can continue. LAN, which merged
in mid-2012 with Brazil’s TAM to create leading Latin American airline group LATAM,
reportedly expects its domestic traffic in Chile to increase by 15% to 20% in 2013. LAN
recorded domestic traffic growth in Chile of 18% in 2012, matching the growth of the overall
industry, according to Chilean CAB data.
LAN captured a powerful 76% share of Chile’s domestic market. This includes a 29% share from
LAN Airlines and a 47% share from the predominately domestic brand LAN Express. LAN
Express carried just under 4 million domestic passengers in 2012, representing growth of 22%,
while LAN Airlines carried 2.4 million domestic passengers in 2012, representing growth of
12%.
LAN Airlines and LAN Express both operate under the LAN Airlines’ LA code although the
LAN Express brand has a lower cost structure and different labour contracts. LAN Express was
initially launched in 2001, taking over flights from Ladeco, which had been an independent
Chilean carrier before being acquired by LAN in 1995.
While LAN Express grew faster in 2012, almost all of the capacity the LAN group added to
Chile’s domestic market in the 2008 to 2011 period came at the main LAN Airlines brand. In
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2008, LAN Airlines only transported 300,000 domestic passengers while LAN Express
transported 3.3 million.
Chile’s Sky continues to grow rapidly
Chile’s second largest carrier, Sky Airline, captured 20% of Chile’s domestic market in 2012, up
from 19% in 2011. Sky was able to expand its market share despite the rapid growth at rival
LAN by growing its domestic traffic by 24% to 1.7 million passengers.
Chile domestic market share (% of passengers carried) by carrier: 2012
Chile’s domestic traffic (number of passengers carried) by carrier: 2012 and Dec-2012
Sky has grown rapidly since launching services in late 2001. Sky passed the 500,000 passenger
mark in 2004, giving it at the time a 17% share of Chile’s domestic market. It passed the 1
million mark in 2010, giving Sky at the time a 19% share of Chile’s domestic market.
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Sky also has been focusing the last three years on renewing its fleet, replacing its original 737200s with A320 family aircraft. The carrier, which serves 13 domestic destinations according to
Innovata data, currently competes with LAN across all major trunk routes.
Chile’s PAL struggles to compete in scheduled market
Chile’s third carrier, PAL Airlines, launched as a charter carrier in 2003. It expanded into
scheduled services in 2009, primarily in the domestic market, and grew from 2009 to 2011. But
PAL shrunk by 7% in 2012 as the overall market expanded significantly, carrying only 272,000
domestic passengers compared to 293,000 passengers in 2011. PAL captured only a 3% share of
the domestic market in 2012, down from 4% in 2011.
PAL has continued to shrink in recent months, carrying only 14,000 domestic passengers in
Dec-2012 – a 43% reduction compared to Dec-2011 and giving it only a 2% share of the market.
It is now barely larger than Chile’s fourth largest carrier, Aerovias DAP, which unlike Sky and
PAL is a regional carrier and does not overlap with LAN. DAP, which operates within the
Patagonian region of southern Chile, carried about 36,000 passengers in 2012.
The challenge PAL has faced in competing with LAN domestically is highlighted in the load
factor data reported by Chile’s CAB. PAL recorded a domestic load factor of only 35.4% in
2012. While this is the carrier’s highest domestic load factor since expanding into the scheduled
domestic market, it is clearly not sustainable. PAL’s domestic load factor was only 29.2% in
2009, 25.4% in 2010 and 24.5% 2011. The improvement in 2012 came as PAL reduced ASKs
by 32%.
Chile domestic RPK, ASKs and load factors by carrier: 2012 versus 2011
The domestic load factor for the overall industry improved significantly from 70.9% to 75.2% as
RPKs were up 18% on only an 11% increase in capacity. LAN Express and LAN Airlines both
recorded load factors of 82% in 2012 while Sky recorded a load factor of 65.7%. Sky’s domestic
load factor has been consistently in the mid to upper 60s over the last four years – a respectable
level given the competition with LAN but likely not high enough for sustainable profits. LAN’s
domestic load factor has been consistently above 80%, and as a result the carrier’s domestic
operation has consistently been highly profitable while the country’s smaller carriers have
struggled.
PAL, which operates a small fleet of 737-200/300s, is particularly in a vulnerable position. The
carrier only operates scheduled services to five domestic destinations. It has struggled to compete
against LAN and has been more a nuisance rather than a serious competitor, filing a protest to
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Chile’s anti-trust court TDLC against the LAN-TAM merger that resulted in a delay to the
merger process. More recently PAL filed protests to try to block non-Chilean carriers from
operating domestically.
Foreign carriers are free to compete in Chile’s domestic market
Chile has opened up its domestic market to foreign carriers, hoping to attract new entrants and
avoid the market from being stifled by powerful LAN. Uruguay’s Pluna briefly operated some
domestic routes in Chile in 2009 and 2010 and again in 2012. But Pluna, which carried about
9,000 domestic passengers in Chile during 1H2012, ceased all operations in Jul-2012.
Mexican carrier Global Air, also known as Aerolineas Damojh, entered Chile’s domestic market
in 2012 and continues to operate a 737-200 in the country. But it only transported 21,000
domestic passengers in 2012, including 4,000 passengers in Dec-2012, giving it a 0.5% share of
the total market. Swedish cargo carrier West Air also has taken advantage of Chile’s openness
and started operating during 2012 a Bombardier CRJ200 freighter domestically, which allowed it
to capture a 4% share of the domestic cargo market.
But it will be nearly impossible for any carrier – from Chile or overseas – to become a significant
player in Chile’s domestic market. The domestic market could potentially be big enough to
support an LCC but the prospect of competing with LAN would likely turn off any LCC group
that potentially considers a Chilean operation – such as Gol, Azul or
VivaColombia/VivaAerobus. Competition with LAN already prompted Gol to suspended
international operations in Chile in 2012, leaving the Chilean market without a single LCC.
The fact Chile’s domestic market has been able to grow rapidly over the last decade with only a
slight increase in competition shows the market can still expand despite having a dominant
leading carrier. LAN has only seen its market share slip by 6ppt over the last decade, from 82%
in 2003 to 80% in 2007 to 76% in 2012.
LAN believes its cost structure and fares are low enough to support further growth, particularly
among the portion of Chile’s 17 million people who have not flown before. LAN has said it
carried about 1 million first time fliers in Chile during 2012. This trend will likely continue as
Chile’s economy, which expanded by about 5% in 2012 and is expected to grow by another 5% in
2013, and the country’s middle class continues to grow.
While almost the entire country is already covered by air, there are opportunities to continue
growing on most existing domestic routes. In 2012, LAN Express recorded double digit growth
on eight of its 10 domestic routes (see background information), giving LAN confidence there is
room to pursue double-digit domestic growth again in 2013.
Chile sees strong international growth with LATAM controlling 67% of the
market
The strong economy will also likely drive further rapid growth in Chile’s international market.
Outbound international travel has been growing as more and more Chileans have the income
levels to holiday overseas. The outlook for the inbound travel market is also promising as Chile
has become a major tourist and business destination.
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Chile’s domestic market overtook Chile’s international market in size during 2009 and every year
since the domestic market has been growing at a faster pace. But Chile’s international market has
also grown at an impressive clip since 2009, growing by 9% in 2010 despite a huge drop in traffic
during March because of the late Feb-2010 earthquake, followed by 17% growth in 2011 and
16% in 2012.
LAN, not surprisingly, is the leading carrier, capturing 61% of Chile’s international market in
2012, compared to 60% in 2011. The merger with TAM, which is the largest foreign carrier
serving Chile, gives LAN and the new LATAM grouping a powerful 67% share of Chile’s
international market.
LAN recorded 18% international passenger growth in Chile in 2012 to 4.2 million passengers
(excludes TAM). TAM, including the Brazilian carrier and its Paraguayan subsidiary, also
recorded 18% growth in 2012 to slightly less than 400,000 passengers. As a result LATAM,
which was formally established in Jun-2012, recorded 18% growth to 4.6 million passengers.
LATAM therefore was able to surpass the 16% growth in the total international market and
increase its market share by 2ppt. Chile-based LAN Airlines recorded 25% passenger growth in
2012 while LAN Peru and LAN Ecuador saw decreases and LAN Argentina’s traffic doubled
on a low base. LAN often transfers international flights between its different affiliates so only the
overall LAN figure is significant. TAM’s Brazilian carrier, TAM Lineas Areas, recorded 18%
growth while the Paraguayan subsidiary TAM Airlines recorded 17% growth.
Chile international market share by airline group: 2012 vs 2011
Source: CAPA – Centre for Aviation and Chile’s CAB
Note: *Gol ended flights to Chile in Oct-2012, Pluna suspended all operations in Jul-2012 and Qantas launched
flights to Chile in Mar-2012
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Chile international market share (% of passengers carried) by carrier: 2012
Chile’s international traffic (number of passengers carried) by carrier: 2012 vs 2011
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LATAM is the only airline group with a strong position in Chile’s international market as there
are no other players with more than a 4% share. Two other leading Latin American airline
groups, Avianca-TACA and Copa, only captured a 4% share of Chile’s market in 2012.
American Airlines and Sky Airline also captured a 4% share while Aerolineas Argentinas, Air
France and Iberia each captured 3% shares. There are currently only 13 airline groups serving
Chile, including the smaller local airlines Sky and PAL.
Sky looks to become international player through codeshares and network
expansion
Sky currently serves four scheduled international destinations: Arequipa and Lima in Peru;
Buenos Aires in Argentina; and La Paz in Bolivia. The carrier grew its international traffic by
28% in 2012 to 276,000 passengers (includes charter passengers). Most of Sky’s international
expansion came in 2011, when international growth of 241% was recorded on a very low base.
Sky is in a stronger position than smaller PAL both domestically and internationally. It has
pursued a smart strategy of modest international expansion while forging partnerships with
international carriers. Sky began codesharing with Avianca-TACA in 2011 and plans to start
codesharing with Aerolineas Argentinas in 2013. Aerolineas and Avianca-TACA are two of
LAN’s biggest rivals in the region.
The partnerships are logical as it gives Sky some leverage in the Chilean market against powerful
LAN while Aerolineas and Avianca-TACA gain domestic feed for its services to Santiago.
While LAN and to a lesser extent Sky have some international flights from secondary Chilean
cities, all foreign carriers in the Chilean market currently only serve Santiago. As LAN is in
oneworld, it is logical for airlines from SkyTeam such as Aerolineas and from Star such as
Avianca-TACA to use Sky to virtually expand their networks in the fast-growing Chile market.
Sky faces uphill battle as it tries to compete with LAN
Sky, however, still faces a challenging future as independent carrier. There are very few
remaining carriers in Latin America that are competing on major routes (rather than thin
regional routes) and are not part of one of the region’s seven major groups. Sky may ultimately
need to sell out to a larger airline group such as its partner Avianca-TACA.
Sky’s hiatus in further expanding its international network since late 2010, when it added Buenos
Aires and Lima, illustrated the challenges of competing against LATAM. Sky for example could
have launched Santiago-Sao Paulo and would have been given slots at Sao Paulo Guarulhos from
LATAM as part of a mitigation measure in the LAN-TAM merger.
But Sky has not yet entered the market, leaving LAN and TAM as the only carriers in the
second largest international route from Santiago. Brazil’s Gol previously served the route but
stopped operating non-stop flights between Santiago and Sao Paulo in 2008 and in Oct-2012
also dropped one-stop services, leading to an even stronger position for LATAM. About
850,0000 passengers flew between Santiago and Sao Paulo in 2012. Only the Santiago-Buenos
Aires route was larger, with nearly 1.2 million passengers.
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Santiago's international markets by passengers carried: 2012
Source: Chilean CAB data
LAN Airlines grew traffic on the Santiago-Sao Paulo route in 2012 by 74% to 505,000
passengers, according to Chilean CAB data. TAM grew its traffic on the route by 16% to
326,000 passengers. Santiago-Sao Paulo is now LAN Airlines’ third largest international route
from Santiago (see background information) after Buenos Aires and Lima.
Santiago Airport sees rapid growth, prompting terminal expansion
Santiago International Airport has seen rapid growth in recent years, prompting the airport to
launch a terminal expansion project. The airport handled over 14 million passengers in 2012 and
has seen traffic growth of nearly 60% since 2009. The airport is now operating over capacity but
construction is expected to begin this year on a new multi-phase project which is designed to
increase the airport’s capacity to about 29 million annual passengers.
Santiago, which has a population of 5 million, handled 6.8 million international passengers and
7.4 million domestic passengers in 2012. Santiago accounted for 98% of Chile’s international
passenger traffic in 2012 and 45% of Chile’s domestic traffic, according to Chilean CAB data.
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Santiago Airport monthly passenger traffic: Jan-2010 to Nov-2012
Iquique, Easter Island, Antofagasta, Arica, Punta Arenas and Conception also have international
airports but with limited services. Antofagasta is the second largest airport, handling 1.6 million
domestic and 15,000 international passengers in 2012. Iquique, Puerto Montt and Calama are all
roughly equal in size, each handling about 1.1 million passengers in 2012. Projects have been
unveiled to expand all three of these airports.
Santiago-Antofagasta is the largest domestic route from Santiago with about 1.25 million
passengers in 2012. LAN accounted for over 75% of the market, with LAN Airlines carrying
550,000 passengers and LAN Express carrying 406,000 passengers. Sky carried 231,000
passengers on the route, giving it about an 18% share, while PAL carried 61,000, giving it a 5%
share. Santiago-Antofagasta was Sky’s largest route in 2012 while it was the second largest for
LAN Airlines.
Santiago-Calama was the only other route with over 1 million passengers with LAN accounting
for about a 74% share. LAN Airlines carried 696,000 passengers on the route in 2012, LAN
Express 47,000, Sky 149,000 and PAL 80,000. Santiago-Calama was the largest domestic route
for PAL and LAN Airlines in 2012 while it was the second largest for Sky.
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Santiago top 10 domestic routes by passengers carried: 2012
Source: Chilean CAB data
LAN has driven growth in Chile but the market needs more competition
Santiago and Chile’s aviation market has benefited significantly from being the home of LAN,
which started as a tiny carrier in a remote corner of the world before the company started
pursuing a rapid pan-South America expansion strategy that included establishing passenger
airline affiliates in four countries before merging with TAM, the biggest carrier in South
America’s largest market. Chile’s market is poised for further rapid growth as LATAM
continues to expand at several of its hubs.
But the market could also benefit from more competition, particularly outside oneworld. TAM
is expected to join LAN in oneworld, which would further grow oneworld’s share of Chile’s
international market from 69% to an even more powerful 75%. Chile would also benefit from
more low-cost carrier services as the market lost its only LCC in Oct-2012, when Gol dropped
service on the Santiago-Buenos Aires-Sao Paulo route.
The loss of Gol shows the challenges that Chile faces in attracting carriers in a market
dominated by LATAM. While Chile’s aviation market will likely continue to grow at a rapid
clip for at least the near to medium term, LATAM will likely continue to control three-quarters
of the domestic market and two-third of the international market. Chile’s consumers would
benefit from more competition but the overall relatively modest size of the market and LAN’s
very strong position means new entrants are unlikely and the smaller carriers now serving the
market face a challenging future.
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LAN Airlines top 20 international routes based on passengers carried: 2012 vs 2011
LAN Express top 10 domestic routes based on passengers carried: 2012 vs 2011
Chile monthly passenger domestic traffic and growth: Jan-2010 to Dec-2012
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Chile monthly international passenger traffic and growth Jan-2010 to Dec-2012
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Colombia Key Data
Fleet and Orders
Colombia projected delivery dates for aircraft on order: as at 8-Apr-2013
Colombia capacity seats per week by carriers: as at 8-Apr-2013
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Top routes table
Colombia top ten international routes by seats: as at 8-Apr-2013
Seats share
Colombia capacity seats share by alliance: as at 8-Apr-2013
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Colombia's aviation market poised for more
rapid growth in 2013, led by VivaColombia,
Avianca & LAN
Colombia recorded 15% growth in domestic passenger traffic in 2012 and should see more
double-digit growth in 2013 driven partially by expansion at low-cost start-up VivaColombia.
The Colombian international market also grew by 13% in 2012 and should see more rapid
growth in 2013 driven partially by expansion at LAN Colombia.
Colombia’s strong economy and growing middle class population provide favourable market
conditions. The rise in Colombia’s LCC penetration rate, which has always been significantly
lower than Latin America’s other two major markets, is also stimulating demand as VivaAerobus
brings low fares to more domestic routes. But competition in Colombia is intense, making it
difficult to achieve profitability in the domestic market.
Colombia growth outpaces growth in larger Mexico and Brazil
There were 18.85 million domestic passengers in Colombia in 2012, a 14.7% increase compared
to 2011 levels, according to Colombian CAA data. On an RPK basis, domestic traffic in
Colombia increased by 16.6% to 8.4 trillion RPKs.
In 2012, Colombia was Latin America’s fastest growing domestic market among the region’s
three main markets but growth was even faster in some smaller countries including Chile and
Peru. Colombia is Latin America’s third largest domestic market after Brazil and Mexico and the
19th largest in the world based on current seat capacity.
Notes: ranking is based on seat capacity data for week commencing 18-Mar-2013. Growth figures are based on
passenger data
All passenger/RPK growth data comes from civil aviation authorities except for Argentina in which case the data
comes from the country’s privately-owned airport operator.
Supply and demand data used rather than origin and destination data when possible.
Source: CAPA – Centre for Aviation, Brazil’s ANAC, Mexico’s DGAC, Colombia’s CAA, Chile’s CAB, Peru's
DGAC and Aeropuertos Argentinas 2000
Domestic traffic in Colombia has now increased by 76% since 2008, when there were only 10.7
million domestic passengers. The growth has been driven by a strong economy, growing middle
class and intensifying competition, which has led to lower fares. Colombia’s GDP grew by over
4% in 2012 and by nearly 6% in 2011.
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Lower fares have stimulated demand as more carriers have entered domestic trunk routes.
Previously Avianca and Copa Colombia, formerly known as Aerorepublica, were the main
carriers on trunk routes while several carriers primarily focused on the regional market. But
Colombia now has four main domestic carriers – Avianca, LAN Colombia, Copa Colombia and
VivaAerobus – and three regional carriers in Satena, Easyfly and Aerolinea de Antioquia.
(Avianca and LAN Colombia also have regional turboprop operations.)
The domestic LCC penetration rate in Colombia was only 3% in 2012, which makes Colombia
the second least penetrated domestic market after Russia among the top 20 domestic markets in
the world. Over 50% of domestic passengers transported in Mexico and Brazil in 2012 were
flown by LCCs.
VivaColombia passes Copa to become Colombia’s third largest domestic airline
Growth in Colombia’s LCC penetration rate along with continued growth in Colombia’s
economy and middle class will be the main drivers of further domestic growth in 2013.
VivaColombia, which is Colombia’s only LCC, continues to grow its domestic network and is
aiming to carry two million passengers in 2013. This should give VivaColombia approximately a
9% to 10% share of Colombia’s domestic market in 2013, compared to only 3% in 2012.
VivaColombia, which launched services in May-2012, carried 558,000 passengers in its first
eight months of operations, according to Colombian CAA data. That made the LCC
Colombia’s fifth largest carrier behind Avianca, LAN Colombia, Copa Colombia and Satena.
But based on monthly passenger figures for Dec-2012, VivaColombia already passed Satena and
Copa Colombia to become the country’s third largest domestic carrier.
VivaColombia’s average load factor for 2012 was 73.1%, which was 5ppt below the Colombian
industry average of 78.1%. Avianca led the Colombian industry with an average domestic load
factor of 82%, followed by Copa Colombia at 78.6%. LAN Colombia had an average load factor
of 71.4% while Satena’s load factor was 67.9%, Easyfly was 75.1% and Antioquia was 64.1%.
Avianca grows market share despite VivaColombia launch
Market leader Avianca was able to grow its share of Colombia’s domestic market from 40% in
2010 to 41% in 2011 despite the entry of VivaColombia. Avianca carried 11.5 million domestic
passengers in 2012, an 18% increase compared to 2011.
LAN Colombia maintained its share of the domestic market at 19% as the carrier grew
passenger traffic by 13% to 3.6 million. Copa Colombia has been the most impacted by the
launch of VivaColombia and rapid growth of Avianca, seeing its share of the domestic market
drop from 11% in 2011 to 8% in 2012.
But the drop in market share at Copa Colombia has been intentional as part of a group strategy
at Panama-based Copa to focus more on the international market. Copa Colombia cut domestic
seat capacity by 18% in 2012, choosing to limit exposure to what it saw as irrational competition
in the domestic market. As a result, Copa Colombia’s domestic traffic dropped by 18% to 1.5
million. Copa Colombia’s international seat capacity however was up by 33% in 2012 as it added
frequencies on several of its routes connecting Colombia with Copa’s main Panama City hub.
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Satena accounted for 4% of the domestic market in 2012, followed by 3% for Easyfly and 1% for
Antioquia. Satena saw its traffic drop by 10% to 751,000 while Easyfly recorded 18% growth to
633,000 and Antioquia posted 4% growth to 260,000. Satena is a government-owned carrier
operating regional jets and turboprops, including on subsidised routes to rural areas, while
Easyfly and Antioquia are privately owned turboprop operators.
Colombia domestic market share (% of passengers carried): 2012
Source: CAPA – Centre for Aviation & Colombia CAA
Colombia domestic market share (% of passengers carried): 2011
Source: CAPA – Centre for Aviation & Colombia CAA
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The rapid growth at Avianca has been driven by the launch of services or additional capacity on
routes that VivaColombia has launched. The additional domestic passengers carried by Avianca
in 2012, about 1.8 million, was more than three times the number of passengers VivaColombia
carried.
VivaColombia proves potential of point-to-point domestic routes bypassing
Bogota
Colombian CAA data shows that a majority of the growth in Colombia during 2012 was on
routes served by VivaColombia. This shows the huge potential for growth in Colombia’s
domestic market as VivaColombia enters more markets. VivaColombia follows a Ryanair-like
pure LCC model that offers very low fares and relies heavily on ancillaries. The carrier is partially
owned by Irelandia Aviation, which is led by Declan Ryan, the son of Ryanair founder Tony
Ryan.
Medellin-based VivaColombia’s strategy of focusing on point-to-point routes that bypass
congested Bogota, where it currently only operates five daily frequencies, has particularly led to
huge growth on routes which were previously un-served or under-served.
For example the Barranquilla-Medellin route saw 192% growth from only 79,000 passengers in
2011 to 232,000 in 2012. The average load factor on the route was 79.1% in 2012, down only
2.5ppt from 2011 despite the huge increase in capacity. This shows there is room for huge
market stimulation on point-to-point routes. Barranquilla-Medellin is currently served with 12
weekly VivaColombia and 20 weekly Avianca frequencies, according to Innovata data. Avianca
roughly doubled capacity on the route when VivaColombia entered.
Cartagena-Cali showed the most growth among Colombian routes but on a very low base,
increasing from only 3,500 passengers in 2011 to 101,000 passengers in 2012. The average load
factor on the route was a respectable 80.8% in 2012. Cartagena-Cali is now served with three
weekly VivaColombia and 10 weekly Avianca frequencies, according to Innovata. Avianca
roughly tripled capacity on the route when VivaColombia entered.
Colombia’s five main trunk routes (above one million annual passengers) also grew but not as
rapidly. Bogota-Medellin grew by 17%, Bogota-Cali by 3%, Bogota-Cartagena by 15%, BogotaBarranquilla by 5% and Bogota-Bucaramanga by 8%. VivaColombia has so far entered three
routes from Bogota – Cali, Cartagena and Medellin.
On Bogota-Medellin, Colombia’s largest route, VivaColombia carried 117,000 passengers,
accounting for 4% of total traffic, while Avianca carried 1.8 million passengers, an increase of 8%
compared with 2011. LAN Colombia carried 600,000 passengers on the route, an increase of
47%, while Copa Colombia traffic dropped 17% to 222,000.
Passenger traffic at Medellin surges 32% in 2012
It is no coincidence that VivaAerobus’ only base, Medellin’s Jose M Cordova Airport, was by far
the fastest growing major airport in Colombia in 2012. Passenger traffic at Medellin’s main
airport surged 37% to 5.1 million passengers, according to Colombian CAA data. Cartagena also
saw rapid growth, increasing 32% to 2.8 million.
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Traffic at Bogota still grew 11% to 22.5 million passengers despite congestion. Growth at
Colombia’s other two major airports, Cali and Barranquilla, was 14% to 3.7 million and 17% to
1.9 million respectively.
The 15% growth in overall Colombian domestic traffic in 2012 follows much slower growth of
only 5% in 2011. But Colombian domestic passenger traffic surged by 13% in 2009 and 30% in
2010 as Aires added 737-700s as part of a new LCC operation on trunk routes. Aires was
considered at the time to be Colombia’s first LCC although it continued to follow its original
full-service regional carrier model on non-trunk routes.
Aires was nearly bankrupt when it was acquired by LAN in late 2010. Under LAN management,
Aires was restructured and transitioned back to a full-service carrier as part of an effort to
improve profitability. The result was slower domestic growth for the overall Colombian market
in 2011. But after completing the restructuring and rebranding as LAN Colombia in late 2011,
the carrier resumed domestic expansion in 2012.
Colombia’s international market grows by 13%
In 2013 LAN Colombia is focusing on international expansion as the carrier deploys a recently
acquired fleet of Boeing 767s. LAN Colombia carried only 96,000 international passengers in
2012 giving it only a 1% share of Colombia’s international market. LAN Colombia last year only
operated two international routes, linking Bogota with Miami and Sao Paulo (the latter was
launched in Jun-2012 at about the time the LAN Group completed its merger with Brazil’s
TAM). LAN Colombia is adding capacity on both routes from 01-Apr-2013 by up-gauging
from A320s to 767s.
Total international passenger traffic in Colombia grew in 2012 by 13.3% to 8.7 million. Avianca
saw its international passenger traffic to and from Colombia grow by 15% in 2012 to 3.5 million
passengers. This gave Avianca a leading 41% share of Colombia’s international market.
When including sister carriers TACA (El Salvador), TACA Peru, LACSA (Costa Rica) and
Aerogal (Ecuador), the Avianca-TACA Group carried 4.4 million international passengers to
and from Colombia in 2012, giving it a 51% share of the market. The Copa Group, which
includes Panama-based Copa Airlines as well as Copa Colombia, transported 1.5 million
international passengers, giving it a 17% share.
The LAN Group accounted only for a 5% share of international passenger traffic in Colombia in
2012, which it is keen to grow as LAN Colombia expands its international operation. American
is the largest US carrier serving Colombia and transported almost 500,000 passengers to and
from the country in 2012, giving it a 6% share of the total market.
Colombia’s largest international market, the US, saw rapid growth in 2012 and is expected to see
more rapid growth in 2013 as open skies was implemented at the beginning of this year.
American Airlines saw its passenger traffic in Colombia grow by 14%. Spirit Airlines, the second
largest US carrier in Colombia, recorded 10% growth. JetBlue, which launched several routes to
Colombia during 2012 and is now the fourth largest US carrier in the market after United,
recorded 83% growth.
105
Spirit and JetBlue are the only foreign LCCs serving Colombia, giving the country a meagre
international LCC penetration rate of 5%.
Colombia market offers opportunities, particularly for LCCs
Colombia’s low LCC penetration rate should lead to opportunities for rapid growth in both the
domestic and international markets. The country’s rapidly expanding middle class has a
potentially huge appetite for low fares that VivaColombia and US LCCs are only starting to tap.
Infrastructure constraints in Bogota could limit growth at the capital but Colombia has several
fast-growing medium size cities which are relatively under-served. VivaColombia, Avianca and
Colombia’s regional carriers have shown the potential of offering more direct domestic services
between the secondary cities while Copa has succeeded at connecting Colombia’s secondary
cities with its less congested Panama City hub. This is just the tip of the iceberg as Colombia
continues to emerge as an important growth market.
106
Mexico Key Data
Fleet and Orders
Mexico projected delivery dates for aircraft on order: as at 8-Apr-2013
Mexico capacity seats per week by carriers: as at 8-Apr-2013
107
Top routes table
Mexico top ten international routes by seats: as at 8-Apr-2013
Seats share
Mexico capacity seats share by alliance: as at 8-Apr-2013
108
Mexico returns to double-digit domestic
growth in 2012, boosting outlook for
Aeromexico and LCCs
Mexico’s domestic market recorded double-digit growth in 2012 for the first time in five years
and only the second time this century. The Mexican aviation industry has reached its healthiest
point since deregulation led to the launch of five low-cost carriers seven years ago. The market
now features a strong legacy airline group and three LCCs which are seeking to cash in on their
relatively strong positions by holding initial public offerings.
Mexican carriers flew 28.1 million domestic and 5.9 million international passengers in 2012,
according to newly released statistics from Mexico’s DGAC. Domestically the market grew by
10% while the much smaller international market grew by 23%. Foreign carriers serving Mexico
recorded much more modest growth of 3%, but still dominate Mexico’s international market
with 21.2 million passengers carried in 2012.
The 10% domestic growth represents the highest figure for Mexico since 2007, when five new
low-cost carriers drove a 23% increase in passenger traffic to 27.4 million. The opening up of
Mexico’s market to new entrants led to a prolonged period of over-capacity, irrational
competition and unprofitability for every carrier. Mexico’s domestic market ended up declining
after reaching a high of 27.7 million passengers in 2008 as several carriers went bust due to a
brutal combination of over-capacity and deteriorating economic conditions.
Two of the five Mexican LCCs which launched services in 2H2005 or 1H2006, ALMA and
Avolar, ceased operations in 2008. One of the country’s smaller legacy carriers, AeroCalifornia,
also ceased operations in 2008 while Azteca, a newer carrier which had launched in 2001, ceased
operations in 2007. The shake-out continued in 2009 with the shutdown of smaller legacy carrier
Aviacsa and concluded in 2010 with the collapse of Mexicana, including its low-cost unit Click
and regional subsidiary Link.
Mexico’s domestic market finally recovers and reaches new passenger record
Seven years after deregulation, the Mexican market has finally recovered. The 28.1 million
domestic passengers carried in 2012 represents the first time the previous record figures from
2007 and 2008, when nine to 10 major players competed in the market, have been exceeded.
Mexico annual domestic traffic (millions of passengers): 2001 to 2012
Source: CAPA – Centre for Aviation & Mexico’s DGAC
Aeromexico, including its regional subsidiary Aeromexico Connect, is the lone legacy survivor
while Interjet, Volaris and VivaAerobus are the three surviving LCCs. Grupo Aeromexico
captured 38% of the domestic market in 2012, a decrease of 2ppt compared to the 40% share the
group had in 2011 but still a 6ppt increase compared to its 32% share from 2009, the last full
year before Mexicana’s collapse. Group Aeromexico has seen its domestic traffic grow by 34%
109
since 2009, filling some of the void left by Grupo Mexicana, which captured a 27% share of the
domestic market in 2009.
Mexico’s surviving trio of LCCs have grown even more rapidly since the collapse of Mexicana
and Click, filling most of the void left by Grupo Mexicana. Interjet, Volaris and VivaAerobus
combined have seen their domestic traffic more than double over the last three years, from 7.6
million in 2009 to 16 million in 2012.
LCCs now account for 57% of Mexican domestic market, up from 47% in 2009
Interjet captured 24% of Mexico’s domestic market in 2012, compared to 25% in 2011 while
similarly sized Volaris captured a 20% share, compared to 18% in 2011. Back in 2009 both
Interjet and Volaris had nearly identical 13% shares of the market while Mexicana LCC brand
Click had a 15% share.
Interjet grew faster domestically in 2011 as Volaris focused more on expanding its US network.
But in 2012 Volaris focused more on domestic expansion while Interjet, which had only been
operating domestically until mid-2011, focused more on international expansion.
Smaller LCC VivaAerobus has seen its share of the domestic market increase from only 6% in
2009 to 12% in 2011 and 13% in 2012. The other two carriers operating scheduled services in
Mexico, regional carrier Aeromar and leisure carrier Magnicharters, account for the remaining
5% of the market.
Mexico domestic market share (% of scheduled passengers) by carrier: 2012
110
Mexico annual domestic traffic (millions of scheduled passengers carried) by airline group: 2009
versus 2011 and 2012
Source: CAPA - Centre for Aviation & Mexico’s DGAC
Note: Aeromexico includes Aeromexico Connect. 2011 figures are not included as Mexicana suspended operations
in Aug-2010, distorting the full year data
All of Mexico’s major domestic carriers recorded year-over-year passenger traffic growth in 2012,
driving the 10% growth for the overall market. Volaris recorded the fastest growth at 25%
followed by VivaAerobus, which like Volaris focused on domestic expansion in 2012, at 20%.
Grupo Aeromexico and Interjet recorded 4% and 6% growth, respectively, as they focused more
on international expansion.
Growth in Mexico has been paltry compared to other Latin American markets
When compared to other emerging markets, including other markets in Latin America, the
growth in Mexico over the last decade has been relatively unimpressive. Even with the launch of
LCCs taking over half of the market and stimulating demand with lower fares, Mexico’s
domestic market has only grown by 60% since 2002. It has also taken 20 years for Mexico’s
domestic market to double in size.
In comparison, Brazil’s domestic market has grown by over 50% since 2009 and by almost 150%
since 2005. Colombia’s domestic also has seen rapid growth, growing by almost 80% since 2008.
Brazil is currently the world’s fourth largest domestic market based on current seat capacity while
Mexico is the tenth largest and Colombia is also in the world’s top 20.
Chile, which is the fourth largest domestic market in Latin America behind Brazil, Mexico and
Colombia, has grown even faster over the last three years. Chile recorded domestic growth of
18% in 2010 and 2011 and growth of 19% in 2012, making it somewhat surprisingly the fastest
growing market in Latin America.
Even with its first double-digit showing in five years, Mexico was the second slowest growing
domestic market in 2012 among Latin America’s six largest domestic markets. Only Brazil,
which experienced a dramatic cool down after recording 24% domestic growth in 2011, had
slightly slower growth than Mexico in 2012.
111
Source: CAPA – Centre for Aviation, Brazil’s ANAC, Mexico’s DGAC, Colombia’s CAA, Chile’s CAB, Peru's
DGAC and Aeropuertos Argentinas 2000
*Note: Colombia data is for the first 11 months of 2012 because full-year supply and demand 2012 data is not yet
available. For Brazil, Mexico, Chile, Peru and Argentina data is for the full year. All data comes from civil aviation
authorities except for Argentina in which case the data comes from the country’s privately-owned airport operator.
Supply and demand data used rather than origin and destination data when possible.
But while Mexico has not seen the growth of its Latin American peers over the last decade, the
market has now finally stabilised, ushering in a new era of growth and – hopefully - profitable
growth. Mexico’s economy also has stabilised and while it still is not the fastest growing country
in the region the ingredients are there for growth.
Mexico year-over-year GDP growth (% change) 2008 to 2013*
Source: International Monetary Fund, World Economic Outlook Database
Note: *estimated
Mexico’s domestic beach markets record rapid growth, led by Mexico CityCancun
LCCs are particularly well positioned to tap into the growth as rising discretionary income and
low fares persuade more and more bus travellers to take to the skies. Volaris and VivaAerobus are
particularly targeting the first time flier segment and leisure markets. Both carriers have
particularly been adding capacity in beach markets, believing its low fares can stimulate more
trips to Mexico’s many popular beach resort destinations.
For example, Mexico’s biggest domestic route and largest beach market, Mexico City-Cancun,
recorded 39% growth in 2012 to 3.1 million return passengers. The nearly 900,000 additional
112
passengers that flew between Mexico City and Cancun last year account for one-third of the
additional 2.6 million passengers in the entire domestic Mexican market. Over the last year
Volaris has grown capacity on the Mexico City-Cancun route by about 45%, according to
Innovata data. Volaris is now the second largest carrier in the market with a 31% share of
capacity, compared to a 36% share for Aeromexico, 23% for Interjet and 10% for VivaAerobus.
In comparison, Mexico’s other two big domestic trunk routes, Mexico City-Guadalajara and
Mexico City-Monterrey grew by a more modest 14% and 13%, respectively. These are more
business focused markets as they connect Mexico’s three largest cities. There were just over 2
million return passengers in the Mexico City-Guadalajara market and 2.4 million return
passengers in the Mexico City-Monterrey market in 2012, according to data from Mexico’s
DGAC.
Aeromexico and Interjet, which is focused more on the business sector of the market and
operates A320s in a spacious single-class 150-seat configuration although technically it is an
LCC, are the main carriers in the Mexico City to Guadalajara and Monterrey markets.
Aeromexico has a 42% share of capacity on Mexico City-Monterrey and a 41% share on Mexico
City-Guadalajara while Interjet has 36% and 30% shares, respectively.
Cancun leads Mexican airports with 25% domestic traffic growth
Cancun was by far the fastest growing major domestic Mexican airport in 2012, providing
another indication of the strength of the local beach market. Cancun recorded 25% domestic
traffic growth in 2012 to 4.6 million passengers, according to Mexican DGAC data. Cancun is
the fourth largest domestic airport in Mexico after Mexico City, Monterrey and Guadalajara.
Mexico City recorded a 13% increase in domestic traffic to 19.7 million passengers while
Monterrey grew by 9% to 5.2 million passengers and Guadalajara grew by 7% to 5 million
passengers.
Mexico’s top 10 airports by domestic traffic (millions of passengers): 2012 versus 2011
113
Volaris is planning to grow capacity by another 20% in 2013, with again a focus on the domestic
market and particularly beach routes. VivaAerobus, Interjet and Aeromexico are also planning to
pursue domestic expansion in 2013. As a result Mexico’s overall domestic market will likely again
see double-digit expansion in 2013.
Interjet and Aeromexico will both be focusing primarily on expansion in thinner regional
markets as Interjet takes its first batch of Sukhoi Superjet 100s and as Aeromexico Connect
continues to grow its fleet of Embraer E-jets. VivaAerobus and Volaris will likely expand
primarily on point-to-point leisure-focused routes where they see opportunities to stimulate
demand.
Mexican carriers continue to lag behind foreign carriers in the international
market
Mexican carriers recorded rapid international growth in 2012 but they have traditionally
struggled to compete against foreign carriers and are generally more excited about the short-term
domestic prospects. While Aeromexico, Interjet and Volaris have pursued significant
international expansion since Mexicana’s demise, Mexican carriers still have not completely filled
the void left by Mexicana in the international market. The international void has proven to be
more challenging to fill as Grupo Mexicana accounted for 65% of all international passengers
carried by Mexican carriers in 2009 while domestically it only had 27% share of passenger traffic.
Over the last three years Grupo Aeromexico has seen its international passenger traffic grow by
85%, from 2.1 million in 2009 to 3.9 million in 2012. In 2011 the group carried 3.6 million
international passengers, according to Mexican DGAC data.
Volaris has seen its international traffic grow from only 200,000 in 2009 to 1.3 million in 2012.
But its international traffic grew by only 18% in 2012 as the carrier focused more on domestic
expansion. Interjet, which only launched international services in mid-2011, flew 525,000
international passengers in 2012 while VivaAerobus flew only 128,000 international passengers.
Combined Mexico’s trio LCCs have seen their international traffic grow by 1.7 million annual
passengers since 2009 while Group Aeromexico has grown its international traffic by 1.8 million.
But as Grupo Mexicana carried 4.5 million international passengers in 2009 there is still a gap of
1 million passengers or about 20%.
Mexico annual international traffic (millions of scheduled passengers carried) by airline group:
2009 versus 2011 and 2012
Source: CAPA - Centre for Aviation & Mexico’s DGAC
Note: 2011 figures are not included as Mexicana suspended operations in Aug-2010, distorting the full year data
114
The 5.8 million international passengers carried by Mexican carriers in 2012 matches the 5.8
million passengers from 2002 and is 9% less than the 6.4 million passengers transported by
Mexican carriers back in 2000. Mexico’s carriers have essentially lost a decade of international
growth and it will be nearly impossible to grab the market share lost to foreign carriers, in
particular US carriers.
Mexican carriers grow their share of the transborder market but US carriers still
dominate
In 2012, the US accounted for 19.2 million of the 27.1 international passengers in the Mexican
market or 71%. US carriers transported 14.9 million of these passengers while Mexican carriers
transported only 4.3 million, giving it only a 22% share of the market. But Mexican carriers were
able to improve their share of the Mexico-US transborder market from 2011, when they flew
only 3.4 million passengers to the US for only an 18% share of the total market. Overall the
Mexico-US market grew by 5% in 2012.
US carriers have seen their traffic to and from Mexico increase by 22% since 2009 from 12.2
million, but only recorded 1% growth in 2012. Back in 2002 US carriers only flew 7.7 million
passengers to and from Mexico.
While the expansion of Aeromexico, Interjet and Volaris in the US market has allowed Mexican
carriers to claw back some of the market share lost to US carriers in the aftermath of Mexicana’s
demise, it will be challenging for the Mexican carriers to capture more than one-quarter of the
transborder market. Over the years Mexican carriers have found it challenging to compete
against US carriers, particularly in beach markets which cater to inbound traffic.
Mexican carriers have focused traditionally more on migrant worker and visiting friend and
relatives (VFR) traffic in the Mexico-US market. But most of Mexicana’s former migrant
worker-VFR routes have now been taken over by other Mexican carriers and Mexico’s LCCs
prefer to expand domestically rather than compete with US carriers in beach markets.
The large size of the inbound US market is illustrated in Mexico’s international airport traffic
figures as Cancun is as large of an international airport as Mexico City. Cancun recorded 6%
international growth in 2012 to 9.8 million passengers. Mexico City recorded 10% international
growth in 2012, also to 9.8 million passengers.
Several of Mexico’s smaller international airports recorded traffic declines in 2012, including the
beach markets of Cozumel, Mazatlan, Puerto Vallarta and San Jose del Cabo. This shows the
relative weakness in the US inbound leisure market in 2012 as US carriers only grew in the
Mexican market by 1%. These airports rely entirely on North American carriers for their
international traffic; but generally recorded overall growth as domestic demand for beach
destinations increased significantly.
115
Mexico’s top 10 airports by international traffic (thousands of passengers): 2012 versus 2011
Foreign carriers also dominate routes from Mexico to Canada and Europe
The second largest international market from Mexico, Canada, is even more dominated by
foreign carriers. Mexico-Canada traffic grew by 5% in 2012 from 2.2 million to 2.3 million
passengers. But only 60,000 of these passengers were flown by Mexican carriers. Mexico’s third
largest international market, Spain, saw a 6% drop in traffic in 2012 to 766,000 passengers.
Aeromexico has only about a 25% share of the Mexico-Spain market.
European carriers overall recorded a 4% increase in traffic to and from Mexico in 2012 to 2
million passengers. Air Europa, Iberia, Lufthansa, Air Berlin, Air France, British Airways,
Virgin Atlantic, Transaero and Aeroflot as well as several European leisure carriers serve Mexico
while Aeromexico currently only serves Madrid, Paris and (recently added) London Heathrow.
Overall Mexican carriers only account for 22% of total international traffic to and from Mexico.
Mexico international traffic share (% of passengers) by carrier nationality: 2012
116
Copa emerges as fastest growing foreign airline serving Mexico
Panama has emerged as Mexico’s fourth largest and fastest-growing international market, which
is an indication that Mexican carriers are also losing out to foreign competitors on flights within
Latin America. The Mexico-Panama market grew by 56% in 2012 to 740,000 passengers.
Panama’s Copa Airlines, which aggressively markets its services beyond Panama City to South
America and the Caribbean, has been growing rapidly in the Mexican market. Copa now
operates five daily flights to Mexico City and four daily flights to Cancun. It also operates five
weekly flights to Guadalajara and four weekly flights to Monterrey, which it launched at the end
of 2011. No Mexican carrier currently serves Panama as Aeromexico quickly pulled out of the
market after launching a Mexico City-Panama City service in 2011.
Aeromexico has successfully added some capacity in Latin America since Mexicana’s collapse
and now serves six destinations in South America and Costa Rica and Guatemala in Central
America. Interjet also links Mexico City with Costa Rica and Guatemala but Volaris and
VivaAerobus currently only serve the US.
The rapid growth of Copa indicates the Panamanian airline is carrying a large portion of
passengers heading from Mexico to South America, particularly destinations which are not
linked with non-stop flights. Aeromexico and Mexican carriers risk losing more traffic to Copa
and other Latin American carriers if they do not build up their Latin American networks as
intra-Latin America traffic is expected to continue growing rapidly. Mexico is also served by
Latin American carriers Avianca, TACA, LAN, TAM and Aerolineas Argentinas.
Domestic outlook is brighter as international opportunities are limited
Mexican carriers remain predominately focused and have always been more attracted to the US
market than to Latin America or Europe. The reality is Mexican carriers struggle to compete
against foreign carriers in the international market and when market conditions are favourable
domestically, like they are now, it is logical for Mexican carriers to focus on domestic expansion.
Mexico’s aviation industry has gone through a tumultuous period with a huge wave of
consolidation finally ending a prolong period of over-capacity and unsustainably low load factors.
Aeromexico’s position has been strong since Mexicana’s collapse even if it remains a relatively
small international operator with a widebody fleet of only 11 aircraft. The SkyTeam carrier has
been consistently profitable since the demise of Mexicana and completed a successful IPO in
mid-2011.
All three of Mexico’s LCCs are keen to follow Aeromexico with their own IPOs, which could be
used to further accelerate fleet and network expansion. VivaAerobus has indicated it aims to seek
an IPO in 2013 while larger Volaris and Interjet also have IPOs in their plans.
With the domestic market they rely on heavily growing again and Mexico’s aviation industry
having reached a healthy equilibrium, the outlook for all three Mexican LCCs is relatively
bright. Mexico may not be the best growth market in the world, or even in Latin America, but it
should now be profitable and on a firm footing for the future.
117
Mexico domestic scheduled monthly traffic (millions of passengers): Jan-2011 to Dec-2012
Mexico international scheduled monthly traffic (millions of passengers): Jan-2011 to Dec-202
y
118
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WORLD AVIATION Yearbook 2013

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