ANALYSIS: Aerolineas Argentinas steps forward with SkyTeam

Buenos Aires
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A crowd of more than a thousand people came together at a hangar at Buenos Aires Jorge Newbery airport to mark Aerolineas Argentinas's entry into SkyTeam at the end of August. It marked the latest step in the airline's recovery, although many challenges still remain.

"The investments we have made in the name of Argentina and to join SkyTeam are large," Aerolineas president Mariano Recalde said at the ceremony. The SkyTeam membership is the culmination of a difficult decade for the state-owned carrier. Aerolineas completed a three-year reorganisation under Recalde's leadership this year, and emerged last year from a decade-long bankruptcy, which included its renationalisation in 2008. The airline now faces the task of re-establishing its image abroad and competing with its strong regional peers.

Recalde says Aerolineas faced five major challenges when he joined: an uncompetitive fleet, high costs, a large debt burden, too many employees and "disastrous" in-flight service.

"We had two paths," he says. "One way was: we could reduce the costs of the company by firing employees, reducing salaries and reducing routes, but we went the other way. We preferred to grow because Argentina needs connectivity and the main objective of the government was to take care of the employees."

Aerolineas started with its fleet. It retired its aged fleet of Boeing 737 Classics, 747s and MD-80s and replaced them with 11 Airbus A340s and 22 Boeing 737-700/800s, along with 20 Embraer 190s at subsidiary Austral. Recalde says the carrier has focused the fleet around single types for both narrowbodies and widebodies. He adds that Aerolineas is looking for up to four used Airbus A330s to add to its fleet in the next year.

The new aircraft have enabled growth. Aerolineas resumed services to Mexico with flights to Cancun and Mexico City in 2011 after a three-year hiatus - although it has since cancelled Mexico City operations because of poor performance. It has also added frequency on regional routes within South America. Recalde says it will add frequencies to Bogota, Caracas and Miami this year and focus on additional services to Oceania and Europe next year.

The airline's regional growth has also seen it increase frequency between Buenos Aires and Montevideo and Punta del Este following the shutdown of Uruguay's Pluna in July. Recalde denies reports that the carrier has applied for Pluna's route authorities between other Argentine cities and Montevideo, and shortly after the SkyTeam ceremony, detailed a codeshare and memorandum of understanding for further cooperation with Uruguay's BQB Lineas Aereas.

Regional unit Austral is helping to boost Aerolineas on these routes. The airline has added flights to Asuncion, Montevideo, Rio de Janeiro, Santiago de Chile and Sao Paulo from Buenos Aires since it was upgraded to international carrier status by the Argentine civil aviation regulator at the end of last year. Recalde says its smaller aircraft provide Aerolineas with more scheduling flexibility in regional markets.

Aerolineas is SkyTeam's first South American airline member. Michael Wisbrun, managing director of the alliance, encouraged the flag carrier at the ceremony to continue to grow in Argentina and South America in order to help close the gap between its network and those of Oneworld and Star Alliance.

How all of these changes will impact financial performance at Aerolineas is unclear. The carrier lost $486 million in 2010, the last year with available data, according to the airline. While this is an improvement on the losses incurred in 2008 and 2009, it gives little insight to the carrier's balance sheet since it completed its reorganisation. Recalde did not comment on the carrier's recent financial performance.

Aerolineas faces stiff competition. Recalde says that LAN's local subsidiary is a "strong" competitor in the domestic market, but he is quick to note that Aerolineas has an obligation as a state-owned carrier to fly to destinations throughout the country and not just the most popular ones. Consolidation and existing alliances have forced the airline to forge its own partnerships regionally.

"Because of the alliances, LATAM [LAN and TAM] and AviancaTaca, we are obligated to make alliances with, for example, Gol," says Recalde. The Brazilian carrier already has close ties to SkyTeam through its partnership with Delta Air Lines. The carrier also has alliances with Chile's Sky Airline and Ecuador's TAME but no plans to merge with another carrier, he adds.

Recalde denies allegations from other airlines that Argentinian regulator ANAC favours Aerolineas at the expense of foreign carriers. "No, the regulator treats all airlines the same," he says. "In the past, the treatment was better of the foreign and international airlines [than of Aerolineas]. Right now it is an equal treatment to every airline."

Aerolineas has come a long way in a few years. SkyTeam will certainly boost it further but Recalde and his team still have their work cut out for them in the competitive South American market.