Airlines need a seat at the table when Latin American governments discuss aviation says Peter Cerdá, IATA’s Regional Vice President for the Americas.
Many countries in the region welcomed a strong recovery in air travel in 2021, especially in domestic traffic. But, Cerdá warned, “that doesn’t mean we can turn back the clock to 2019. Governments and industry partners cannot go back to old habits. The industry’s recovery will be derailed if we get new taxes, higher costs, and restrictive regulations.”
In 2022, IATA projects a combined loss of $3.7 billion for carriers in Latin America and the Caribbean. This compares with a $500 million deficit in 2019.
Throughout the pandemic, not a single airline in the region received direct financial support from its government. The only relief came from tax and fee deferrals. Unsurprisingly, several airlines went into Chapter 11 and others simply ceased to exist.
Yet, just as the recovery in air travel gains momentum, there are multiple examples of governments and stakeholders in the aviation value chain looking to resume their exploitation of airlines as cash cows.
To provide just a few examples:
In Suriname, the sales tax increased from 8% to 12% with a rise in the airport facility fee also expected
Argentina added an additional tax on all international tickets sold locally in Pesos and increased the international departure tax
Mexico City’s airport use fee is increasing 6% for domestic and international flights
Costa Rican fees have gone up 7%
Saint Martin is proposing to convert the current mandatory COVID-19 insurance for tourists of $30 into a permanent charge
“Instead of encouraging travel and tourism, these measures will have the opposite effect,” says Cerdá.
Regulations, particularly in the area of consumer protection, could also dampen demand at a crucial period in the recovery.
Cerdá insists that IATA does not question the merit of consumer protection, but airlines need to be able to provide input into the decision-making process. so that rules are justified and respect the complexity of the operating environment. Airlines need to be able to compete in a transparent manner for the benefit of consumers.
Brazil has long been the worst offender with its “presumed moral damage”, which essentially turned litigation against airlines into a judicial commodity. Even though the situation has changed somewhat with Brazil accepting the tenets of the Montreal Convention, lawsuits in the country are still at eye-watering levels.
Rules that take little account of airline costs and operating procedures can be seen throughout the region. In Chile, it is now possible to change the name on a ticket for domestic flights. In Argentina, protectionist policies are coming to the fore resulting in new fare bands for domestic travel and a monopoly ground services provider controlled by government.
Another area that needs fresh thinking from governments is sustainability, most notably in the area of sustainable aviation fuels (SAF).
Even though the industry, including all the IATA members based in Latin America and the Caribbean, has committed to a net-zero carbon emissions target by 2050, there are no regular, scheduled flights taking off from the region that use a SAF blend. And there is no significant infrastructure in place that makes it a likely prospect in the short term.
“Again, we have to get governments on board and explain why SAF are so vital to the industry’s future,” says Cerdá. “They need to build the right infrastructure and support production and distribution through carefully targeted incentives. There is a unique opportunity in this region to be a major SAF supplier.”
Certainly, the demand will be there. Aside from the industry target, Aeromexico, Azul, GOL and LATAM are among the airlines that are determined to meet self-imposed, challenging sustainability goals.
Cerdá points out that the social and economic benefits of aviation should spur on governments in the region. Pre-pandemic, the industry supported $1.29 trillion in GDP and 16.4 million jobs across the continent. Air transport was also vital during the crisis, repatriating citizens and flying in vital medicines and equipment.
Not only this, but aviation is also the sole viable transportation mode for intra-regional connectivity. Highways are scarce in the entire region and the same goes for rail. Countries are large and long with the Andes forming a formidable barrier. Air travel is a safe, reliable, cost-effective, and relatively quick form of transport.
The importance of this can be seen in the changing nature of regional networks. In countries including Chile, Mexico and Colombia, most traffic was funneled through the key hubs. That trend is now fast disappearing as point-to-point connectivity to secondary and tertiary cities take hold. Alongside this, there is a need to ensure that the required airport infrastructure is provided at reasonable costs so that the industry is ready to accommodate the projected post-pandemic growth. The issue is most acute in Lima, along with Bogota and Mexico City.
Overall, attitudes toward aviation vary greatly. Business-friendly environments exist in such countries as Barbados, Ecuador, Honduras, Mexico, and Panama. Mexico, for example, never closed down air travel and domestic figures for 2021 surpassed 2019. In contrast, the current government in Argentina is planning to roll back the aviation deregulation introduced by its predecessor.
More recent elections in several countries across the region have followed a similar trend in bringing about a shift from open market politics to more restrictive business policies. In 2022, elections in Brazil and Colombia could well affect the future of regional aviation.
“Aviation has to be high on the regional agenda,” concludes Cerdá. “There is a strong interest in intra-regional connectivity and in Latin America and the Caribbean from all other regions. Domestic numbers will likely reach 2019 levels in 2022 and international traffic is expected to reach pre-pandemic levels in 2024, earlier in some key markets. Clearly, the demand is there. When people are given the opportunity to fly, they will fly.
“But 2019 traffic numbers cannot be the metric we aspire to. We do not want an industry that makes a loss or airlines that cannot compete in a fair and transparent manner, because that will hurt everybody. Governments and other aviation value stakeholders must not hinder airline recovery with restrictive policies and practices. Smarter regulation and a keen eye on costs will help airlines resume their vital role in social and economic development. If we work together, we can ensure the region is competitive in the new, post-COVID world.”
Building a Sustainable Future Together, the IATA Wings of Change Americas event, will be held in Santiago, Chile 6-7 April.