European carriers have been piling on capacity in the South Atlantic over the past few years, often winning the lion's share of some lucrative markets. But the strongest Latin carriers are fighting back with expansion plans of their own
Europe has rediscovered Latin America, turning the South Atlantic into one of the world's fastest growing inter-continental markets. Europe-Latin America traffic started growing four years ago, but it took a while for European carriers to notice. In 2003 they were still pulling capacity out of the region. But two years ago they reversed that trend as the South Atlantic became their fastest growing market. Passenger numbers have continued to climb at double-digit rates ever since.
Mid-2006 brought major change. With traffic still growing at a robust 10-13%, the European carriers suddenly found a big vacuum to fill. In July 2006 Brazil's Varig, already in bankruptcy, grounded what was left of its fleet. It has since resumed limited service, but is no longer a significant player. Its share of international traffic carried by Brazilian airlines has plunged from 79% before bankruptcy to 4% today.
Rival TAM raced to fill Varig's vacuum, but it lacked the routes or fleet to move quickly. In the fourth quarter of last year the Europeans added capacity to Latin America as fast as they could, averaging 12% growth per month. This was twice as fast as the European carriers' growth anywhere else in the world.
This torrid pace has continued into 2007 with both traffic and capacity growing at a 14% monthly average. Although dynamic, the South Atlantic is still one of Europe's smallest inter-continental markets.
Iberia claims 20% of the South Atlantic and plans a 6% capacity increase next year, but other European rivals have joined it. TAP Portugal is strong in Brazil, where it and Iberia moved the fastest to fill Varig's vacuum. In 2005 Air France-KLM decided to boost its Latin presence, and it plans to add a further 11% capacity this year. British Airways has withdrawn from Colombia and Venezuela, but still serves Argentina and Brazil. Alitalia operates daily flights to Argentina, Brazil, and Venezuela. Since July, Swiss has had daily flights to Brazil and Chile.
Lufthansa is boosting its presence on its own as well as through alliances. The German carrier will shortly add five weekly flights to Buenos Aires. Under new accords with TAM and Grupo TACA, it will study various forms of co-operation with these two prominent Latin American carriers, ranging from codeshares to schedule co-ordination. Since Varig's withdrawal, Star Alliance has been on the hunt for a new Latin partner.
Low-cost European carriers also fly South Atlantic routes. Air Madrid was first in mid-2004 with an average of two to four weekly frequencies to several Latin cities. Later that year, Air Europa and Air Plus Comet arrived. All three cater to price-conscious tourists.
Last December, amid safety and service concerns, Air Madrid suspended operations. A scramble ensued to rescue 330,000 passengers stranded right before Christmas, and then to see who would claim Air Madrid's network. Air Plus Comet, owned by Aerolineas Argentinas parent Marsans, hammered out a deal with aviation officials in which it agreed to hire 53% of Air Madrid's staff and to start transporting stranded Air Madrid passengers back to Spain.
During that same period another Spanish low-cost carrier, Air Asturias, made a brief entry on to several Latin American routes. But it shut down late in January, leaving the South Atlantic low-cost sector exclusively to Air Europa and Air Plus Comet. The latter has since re-branded itself as Air Comet.
Network ties
Because of Air Comet's ties through the Marsans group to Aerolineas and Chile's Aerolineas del Sur, it has a chance to form a more integrated Latin network than any other European carrier. Most Latin carriers lack this kind of access, and have had to defend their share of the South Atlantic market on their own or through alliances. Overall, their market share is similar to their share of the North American market. In both, they are clear underdogs. Varig's near-demise may distort Brazil's numbers, but the fact that foreign airlines operate 73% of Brazil's international flights is close to the Latin American norm.
Avianca has ordered 10 Boeing 787s with an eye to claiming more of the transatlantic market. TAM has similar goals as its order for 22 Airbus A350s shows. Brazil's CAA is keen to reclaim dormant Varig routes and reassign them to TAM and other local airlines.
The only Latin carrier capable of defending or claiming South Atlantic market share on a regional scale is LAN. It is the only carrier with domestic rights in four Latin American nations. LAN has boldly predicted that by next year it will make Madrid its European gateway and operate flights to Madrid from Argentina, Brazil, Chile, Ecuador and Peru.
Chile is a given for LAN, and it already flies to Madrid from Ecuador. In August LAN Peru launched Lima-Madrid flights. That leaves Argentina and Brazil. LAN Argentina already has route rights to Madrid and five other European cities. Francisco Vidal, LAN's vice-president for Europe, says a Buenos Aires-Madrid flight is in the works, and LAN will add a Brazilian gateway next year using fifth freedoms between Brazil and Spain.
LAN also does not rule out the possibility of launching its own Brazilian airline, despite its alliance with TAM. LAN intends to use its integrated regional network aggressively, as evidenced by its plan to acquire 32 Boeing 787s, one of the largest aircraft orders in Latin American history. These moves will not end Europe's dominance, but the assertive growth of Avianca, TAM and LAN could bring more balance to the South Atlantic market.
Source: Airline Business
