Starting on January 1, 2023, the Colombian civil aviation industry will face an increase in fares fueled by global inflation, an increase in the prices of fuel and other key items for airlines, and the end of a Value Added Tax (VAT) reduction by the local government, a measure aimed to ease the recovery following the COVID-19 pandemic. The International Air Transport Association (IATA) has warned this could lead to a reduction in capacity, which could endanger the sustainability of carriers in the country.
Is trouble on its way to Colombian airlines?
It has recently been reported that ticket airfares in Colombia could increase as much as 40% in 2023 compared to 2022. The rise will be at least 14% due to the end of a VAT reduction measure throughout the tourism chain, which allowed carriers to charge only a 5% VAT on tickets instead of the official 19% rate.
Other factors could fuel the increase in ticket prices, such as inflation, the devaluation of the Colombian peso, fuel, air navigation, and airport tariffs.
If this rise in prices does take place, it could deeply impact the recovery and growth of the local airline industry, which has been outstanding in the last few years. In 2022 alone, the country had a 16.2% passenger growth between January and November compared to the same period prior to the COVID-19 pandemic.
What is IATA saying?
On Friday, IATA warned of a possible contraction in demand, which could lead to a loss in the socio-economical benefits that aviation brings the South American country. “Therefore, IATA urges the authorities to review the market conditions, so the air sector and the tourism don’t lose competitiveness, dynamism, and the strong recovery process that both had so far.”
Despite the strong recovery from an operational point of view, the Colombian airlines have struggled financially in 2022. IATA reported that the carriers operating in this country lost around US$1.55 billion in the first half of the year due to the pandemic crisis.
To address these issues, the airlines have already made strong optimization efforts, the airline association said. The Colombian government should look to have a tax system that is simpler, more efficient, and equal, strengthening the social protection net and increasing the investment in infrastructure for the aviation industry…