JetSMART is casting a wide net through South America for potential expansion, but the ULCC start-up aims to create a stable platform in Chile before aggressively expanding to other countries in the region. However, the airline plans to use rights it has secured for service from Santiago to Lima in the near future.
Backed by the ULCC specialist Indigo Partners, JetSMART is learning the nuances of operating within Latin America, including navigating complex ownership rules imposed by some countries, and establishing a home market base where rivals have already positioned themselves to compete with new low cost entrants.
Although there has previously been some discussion about Indigo making moves in the Canadian market as aspiring ULCCs are working toward a launch, the company is not yet ready to commit to Canada as it continues to study the country"™s regulations governing foreign airline ownership
JetSMART is not surprised by rivals’ competitive response in Chile
Indigo launched JetSMART in Chile during Jul-2107, joining other low cost new entrants Volaris Costa Rica and Viva Air Peru that have debuted within Latin America during the past year. Copa has also transitioned the bulk of Copa Airlines Colombia"™s operations to a new low cost platform, Wingo.
Indigo settled on Chile for several reasons, including its having a government that acts reasonably with respect to foreign ownership, and an operating environment where opportunities exist to entice bus passengers to travel by air. Chile allows 100% foreign ownership of its airlines.
According to the CAPA fleet database, JetSMART operates a fleet of three current generation Airbus A320 narrowbodies. During 2H2017 the airline is launching service from Santiago to Calama, Antofagasta, Copiapó, La Serena, Concepción, Puerto Montt and Temuco. JetSMART"™s schedule during that period also includes service from Concepción to Calama, Antofagasta and Puerto Montt and Antofagasta to La Serena.
On most of those routes JetSMART is competing with Chile"™s incumbent airlines, LATAM Airlines Chile and Sky Airline. For the seven months ending Jul-2017, LATAM captured a 70.8% share of Chile"™s domestic market and Sky garnered a 27% share, according to data from Chile"™s JAC. Domestic passenger levels in Chile during that period increased by 3.2% to 6.5 million.
Indigo’s founder and Managing Partner, William Franke, speaking at the recent CAPA Latin American Aviation Summit in Cartagena, Colombia, stated that JetSMART"™s strategy was passenger stimulation rather than stealing customers from rivals. He remarked that Sky had done a good job supporting passengers in the low cost sector.
Approximately two years ago Sky embarked on a transition to a low cost model, and the company"™s CEO Holger Paulmann (in an interview with CAPA TV during the summit) stated that Sky"™s unit cost on a stage adjusted basis were at the same level as those of ULCCs in the northern hemisphere. For 2H2017, US ULCC Spirit"™s unit cost excluding fuel and special items was USD5.73 cents.
