AVIATION INDUSTRY

Serving growing demand in the Americas

Governments in the region must understand the value of aviation.

Despite a host of challenges—including the lingering effects of the pandemic and political upheaval—Latin America experienced a strong recovery in 2022. Such countries as Brazil, Colombia, and Mexico, which had either never imposed travel restrictions or removed them early on, even managed record years.

And it was all achieved without direct governmental financial assistance.

Nevertheless, 2023 promises to be an uphill battle, especially in view of the shift in the political landscape following a series of elections in key markets such as Brazil, Chile, Colombia and Peru. “We are now dealing with many new governments in Latin America who do not always fully understand how the industry works and the benefits that aviation can bring to their respective countries,” says Peter Cerda, IATA’s Regional Vice President for the Americas.

The lack of road and rail in the region makes aviation essential for the safe and efficient transport of passengers and goods. Air cargo is often the only way to bring supplies such as medications and consumer goods to inland markets, for example, and in many cases is the only viable route to export perishables. “Governments sadly tend to overlook the vital role which aviation plays for the wider economy of their respective country. Rather than seeing aviation as the most reliable mode of public transportation they have, they see it as cash cow and tax it,” says Cerda.

Consumer protection

Also concerning are the consumer protection policies being discussed in Brazil, Chile, Colombia, and Mexico. Brazil is the number one country in the world in terms of customer complaints, with legal rulings in favor of the customer far exceeding large air transport markets like the United States or Europe. Airlines are being penalized for issues that are outside their direct control.

IATA has been working closely with the government and the legal community to foster a better understanding of the interdependencies across the value chain and there are some signs of that these are being taken into consideration in the decision-making process.

“These regulations are not protecting the consumer,” says Cerda. “In a competitive market, consumers are empowered anyway. The regulations just have the unintended consequence of making aviation more expensive because of the costs they impose on airlines. This neither benefits the consumer nor the government as it dampens aviation demand.”

And it is already unnecessarily expensive for the consumer because of government taxation. Consider:

The pricing and taxation formula used by Petrobras in Brazil makes jet fuel up to 50% more expensive than in the United States.
In Argentina, taxes and fees paid for international air travel can easily make up 50% of the total ticket price when paid in pesos.
In Colombia, taxes and fees levied by the government on international tickets can easily make up at least 35% of the total fare paid.

“Governments should be supporting aviation so that the industry can strengthen business development, improve connectivity, create a win-win situation for their citizens, and stimulate economic growth,” insists Cerda. “Governments must allow aviation to be an enabler in the social and economic recovery of their countries.”

Other factors adding to airline pressure in Latin America are the appreciation of the US dollar and civil unrest. Many operational items are billed in US dollars, such as fuel and volatile political climates in such countries such as a Bolivia, Brazil, Chile, and Peru could well dampen demand.

SAF production

Regarding sustainability, Cerda points out that Latin America has excellent resources and could become a global leader in sustainable aviation fuel (SAF) production. “This is the moment for governments to create the right policy framework that will allow investment in SAF production,” he says. “This is not only for use within the region but could also be for export to other parts of the world that lack the natural resources to develop SAF.”

Cerda calls for incentives to be put in place that would allow private companies to come in and establish the infrastructure necessary for SAF production. “It would be game-changing,” he suggests.

As it stands, individual airlines are making what progress they can, and many have invested strongly in environmental initiatives.

Regional Challenges

A lack of quality infrastructure also continues to be a concern. In Lima, Peru, work on a new runway and terminal has hit delays, and the new terminal is not expected to open before 2025. The Mexico City set-up continues to confuse many observers. The new airport in Santa Lucia is 40 kilometers away from the city, but the government has failed to construct sufficient ground infrastructure to make it a viable alternative for many travelers.

In addition, the Mexican President has decreed that all dedicated cargo flights will need to move from Mexico City’s International Airport to other airports in the country within a short time frame. Given the fact that moving the operations elsewhere requires careful and coordinated planning across the entire value chain, IATA has asked the Mexican Government for an extension of this tight timeline.

A number of other airports in the region are operating at close to or beyond capacity, making them slot-constrained and stifling airline business. As a result, there is the possibility of demand going unrealized.

“People want and need to fly,” says Cerda. “Governments should be working to serve this requirement. We are seeing a strong recovery from international carriers to the region and even expanding into new second and third tier markets. That is good news, but it also hints at main airports being a problem. That shouldn’t be the case.”

Staff shortages are also looming on the horizon. Even though governments didn’t bail out the airlines during the pandemic, most carriers took the decision to maintain staffing levels. The concern now is that the region could lose these experienced, skilled staff to other regions, which did cut back drastically and are now struggling to keep up with the rebound in demand. Again, counters Cerda, if governments fostered a healthier, internationally competitive aviation industry this would be less likely to happen.

There is also the ongoing battle with air traffic management charges in certain jurisdictions. There are official objections to overcharging in Bahamian airspace while in Canada, IATA is due to meet with air navigation service provider, NAV CANADA, in April 2023 with a view to reducing the 29.5% hike in prices.

Canada and the United States

In the United States and Canada governments are also imposing onerous regulations that fail to appreciate the needs and benefits of aviation.

In the United States, the Biden Administration has focused on expanding the passenger rights regime first introduced by the Obama Administration. This is despite the clear evidence that airline deregulation and resulting competition has delivered lower costs and more travel options for consumers.

“The US Department of Transportation is pursuing regulations that are divorced from the reality of airline operations without meaningful collaboration with industry,” says Cerda. “This will ultimately harm the very consumers that the Department is seeking to support.”

Unfortunately, the Canadian Government often mirrors US regulations. And, as Canada and the United States are major markets, these developments do ripple out across the region and influence decisions in other countries…

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