Argentina: Does the airline business have a future or is it at risk?

Argentina’s airline passengers have been enjoying their first taste of the global boom in low-cost airlines. Now the shift to greater competition is under threat. The country’s newly elected President Alberto Fernandez emphasized during his campaign the need to boost state-controlled flagship Aerolineas Argentinas and has complained that the rise of low-cost has put more pressure on the state-controlled company. Aerolineas will require more than $300 million in subsidies this year, up from $197 million in 2018, because of the latest currency volatility. Another drag on its finances comes from the strength of its labor unions, which require more pilots and mechanics per plane than other companies operating in the country

Fernandez’s endangers an aviation opening that has enabled half a million passengers to fly for the first time. The biggest low-cost, Flybondi, drew unwanted attention weeks ago after its former chief executive officer called Fernandez’s political party a “cancer” in leaked personal messages.

Of Macri’s many grand plans, his airline policy opening allowed competition on more routes and scrapped price floors that propped up airfares. Alongside airport operator Corporacion America, the government invested $2.2 billion since 2016 in infrastructure works. A former military airport near Buenos Aires, El Palomar, was adapted for commercial flights. That positioned Argentina to join a regional boom in budget airlines in countries from Mexico to Brazil. Low-cost operators control today about 35% of the Latin American airline market.

Companies such as Flybondi, Norwegian and JetSmart flocked to Argentina, which has Latin America’s fewest trips per person after Venezuela. Argentina had 14.2 million domestic passengers in 2018, up 13% from the previous year, and low-cost carriers now fly 40 routes. The low-cost have carried more than 3.4 million passengers since early 2018, according to the Transport Ministry.

Flybondi has the most routes of the low-cost and an 9% domestic market share. Since changes in the airline policy, the piece of the pie controlled by Aerolineas Argentinas has fallen to 65% so far this year from 74% in 2015, according to the Transport Ministry. But the flagship airline flew 3% more passengers in the first 8 months of 2019 compared with the same period a year earlier as the number of flyers expanded. The state-controlled company will require more than $300 million in subsidies this year, up from $197 million in 2018, because of the latest currency volatility. Another drag on its finances comes from the strength of its labor unions, which require more pilots and mechanics per plane than other companies operating in Argentina.