While a recent ruling by Chile's tribunal for defence of free competition (TDLC) only affects Chilean airlines, particularly LAN, it shows how competitive concerns increasingly affect Latin American aviation.
Traditionally Chile's civil aviation authority has auctioned off international routes to the highest bidder. Because LAN is usually the sole bidder, Chile has designated it to operate all major routes. But seven of LAN's Santiago-Lima frequencies are up for renewal in July and the TDLC used this occasion to advise aviation officials to use a new approach. They should stop awarding routes solely on bids, according to the TDLC, and adopt a system that takes into account airline market shares.
This policy should apply whenever a Chilean airline controls 75% of all the frequencies on a given city-pair, says the TDLC. Significantly, it combined the market share of LAN and its LAN Peru affiliate to conclude that LAN exceeded this 75% limit, so the seven Lima frequencies could be re-assigned to another qualified airline.
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Sky Airlines is a clear beneficiary of this ruling and says it wants the Lima frequencies. It complained about the current route allocation system when it learned it would be reviewed in July.
Borja Claro, a transportation analyst for Celfin Capital in Santiago, thinks Sky's request only partly explains the TDLC's ruling. He claims the tribunal has been looking for a chance to assert its views on airline competition. "The agency has been pushing as part of a broader strategy," Claro says. "At first it was in retail, then telecom, and now airlines."
Claro notes Chile's civil aviation authority is not automatically required to follow the TDLC's ruling. Both agencies, after all, hold equal status. But he predicts there could be "some noise" if aviation officials ignored the TDLC.
The full implications of its ruling are unclear, but Claro predicts it will "set a precedent". It effectively invites LAN's local rivals, mainly Sky Airlines, to compete for future frequencies wherever bilateral agreements allow for dual designation. If the 75% market share limit includes the share held by LAN affiliates flying into Chile, this has special implications for LAN on routes to Argentina and Ecuador.
The ruling signals a step towards competition playing a bigger role in aviation policy. So far the Latin American example drawing the most attention has been Mexico's competition commission, which forced Cintra to sell Aeromexico and Mexicana to separate owners. But Brazil's competition agency also placed conditions on Gol's takeover of Varig, and Ecuador recently opened its domestic skies to LAN Ecuador
To read our recent cover interview with LAN chief executive Enrique Cueto
Source: Airline Business
