Over half of US-Latin traffic is still between the US and Mexico, but activity further south is gaining ground fast. The US-South America market has grown by 46.6 per cent in the last five years, against 15.4 per cent for US-Mexico and 11.7 per cent for US-Central America, where traffic fell 7 per cent in 1996.
South American countries top the five-year passenger growth list, with Chile and Argentina well ahead (Table 1). Both have lower inflation and higher economic growth rates than others in the region. Mexico and most of its Central American neighbours fall in the middle of the pack, with Venezuela, Ecuador and Uruguay further down. Traffic to Guatemala and Belize has fallen, and the US-Paraguay market is no longer served directly.
US carriers pull ahead
Whereas US flag carriers have been losing market share in Asia and Europe, they continue to pull ahead in Latin America. The US carriers' market share has jumped from 51.5 per cent five years ago to 58.2 per cent last year.
In most cases, Latin flags have not been the beneficiaries of growth in their home markets. For example, traffic between Chile and the US grew by 122 per cent over the past five years, but the combined growth of LanChile and Ladeco was only 40 per cent. Overall, while US carriers' traffic grew 40.2 per cent in five years, the Latin flags' traffic rose by a mere 5.5 per cent.
The only big markets where Latin flags came close to growing at the same rate as overall traffic were Brazil and Colombia. Vasp and Transbrasil are strong competitors in their home markets. Aces captured substantial volumes to and from Colombia, where Avianca also performed solidly. The carriers from Nicaragua and Panama also performed well.
A closer look at three case studies shows how some flag carriers are winning battles on their home turfs and others losing. In Mexico, where five-year traffic growth averaged just over 15 per cent, American, Continental, Alaska Air, America West and Northwest all performed well. The Mexican carriers' significant slip in market share, from 42.6 per cent in 1992/3 to 36.3 per cent in 1996/7, is partially due to the country's painful financial crisis. American is now the market leader, just ahead of Mexicana, while Continental has used its Houston hub to solidify its number three position. It carries more passengers on Mexico City-Houston than any other carrier on any Latin route.
America West has picked routes with potential and no competition, flying from Phoenix to Mexico City, Mazatlan, San Jose del Cabo and Puerto Vallarta, and from Las Vegas to Mexico City. Similarly, Northwest has built a successful niche on largely untapped routes out of its strong hubs, including new services from Memphis and Minneapolis to Cancun, and from Detroit to Mexico City.
United's experience to Mexico has varied. It dominates the growing Washington-Mexico City market and is the only carrier to grow in the weak Los-Angeles-Mexico City market. However, United's other three services to the capital are not good performers. Growth has been flat out of Chicago, dominance of the weak San Francisco market is of little use, and United has lost out to American and Aeromexico out of Miami.
Mexico has not been a good market for Delta. Traffic is down 15 per cent on its biggest route, Los Angeles-Mexico City, and it stopped service from Dallas to the Mexican capital in 1995. It has only managed above-average growth on one route, from Atlanta.
Part of Delta's woes stem from the routes themselves being weak, but even on good routes Delta lost ground to incumbents or failed to capture abandoned traffic. New Aeromexico service captured most of the growth on Atlanta-Mexico City and Delta gave up ground to Aeromexico and Mexicana in the flat Guadalajara-Los Angeles market. When Mexicana stopped serving the eroding New York-Mexico City route, Aeromexico captured the business. From Puerto Vallarta to Los Angeles, Alaska doubled its market share while Aeromexico stood still and Delta and Mexicana lost ground. Even after the pullout of both Aeromexico and Mexicana on the Mazatlan-Los Angeles route, Delta's traffic slipped 5.9 per cent in a market that grew 3.9 per cent.
Generally, Aeromexico weathered the economic storm better than Mexicana, losing only 0.4 percentage points of its market share against Mexicana's 6.8 point decline. Both are now showing signs of recovery, however. Taesa has selected US routes with above-average traffic growth. Its most impressive success has been on Mexico City-Chicago, where it now has 10 per cent of the market. Taesa has also had great success with its 'off the beaten path' route from Guanajuato to Oakland.
Brazil bonus
In Brazil, however, most of the local carriers have been on the upswing. Vasp's traffic performance to the US has been particularly stunning, growing from a small base in 1993 to over 280,000 passengers in 1996/7, making it the fourth largest carrier in the market. Transbrasil has done well too, increasing its US traffic by 80 per cent over five years. Varig has remained in the number one slot but American doubled its US-Brazil traffic in five years, taking it to number two ahead of United.
Vasp has taken most advantage of the growth in the Sao Paulo market, and tripled the number of passengers it carried between Los Angeles and Sao Paulo over the past five years. It now shares that market fairly equally with leader Varig (which codeshares with United) and fifth freedom operators Japan Airlines and Korean Air. Vasp started Miami service in 1994 and New York/JFK service in 1995. The carrier has grabbed 20 per cent of the Sao Paulo-New York market in just three years, at the expense of American, whose traffic is down 30 per cent, and Varig, whose traffic is down 15 per cent.
Transbrasil has risen to prominence by serving the emerging market of Brasilia, whose US traffic has more than doubled in five years, and by developing Sao Paulo-Orlando into a significant route. Transbrasil's Miami service has grown more than sixfold.
Varig's weak growth in a strong market has eroded its position. It used to carry 40 per cent of US-Brazil traffic but now commands less than 30 per cent. The strength of competition from American and other homegrown carriers in both Sao Paulo and Brasilia has left Varig to dominate only Rio, where traffic is down by 30 per cent. Even there American is just shy of becoming number one, as it is at Sao Paulo.
Varig has had mixed success. Two large routes, from Sao Paulo to New York and Atlanta, have done well, but its Sao Paulo-Miami traffic is down 45 per cent.
American looks poised to become the number one carrier in the Brazil market. Its new Dallas-Sao Paulo and New York-Rio routes have joined its successful routes from its Miami hub to the Brazilian cities.
Brazil has been a flat market for number three United, although some of its flights are now operated by codeshare partner Varig.
In contrast to Mexico and Brazil, American's market share to Colombia is dwindling. Colombia's airlines are anxious to capture international traffic and have launched major efforts to do so. Still number one, American is now just 1.5 percentage points ahead of its nearest competitor. Avianca - the next biggest incumbent - has lost only about half as much market share as American, leaving them nearly on a par with each other. Though smaller, Aces Colombia and Continental have been the movers and shakers lately, each having grabbed about 10 per cent of the total traffic base. Continental added Newark-Bogota service to its already growing Houston-Bogota route. Aces has built up significant traffic to Miami from Bogota and home base Medellin.
Aggressive American
Although American's growth slowed in the last year, it clearly has been the most aggressive carrier in the Latin American market, especially in long-haul deep South American markets, which have the highest growth and yield potential. American's already dominant share of US-Latin traffic has gone up by almost 2 million passengers, accounting for half of the growth between the US and Latin America (Table 2).
Continental has also done well, growing slightly faster than American, although its average length of haul, and hence revenue gain, has been less than American's. The carrier has extensive ambitions in the region, hoping to maximise the benefit of its Houston and New York/Newark hubs. Delta, whose Latin traffic has fallen 24.7 per cent in five years, also plans a new push.
Alaska and America West have quietly become major factors in the west coast US-Mexico market. Together they carry more traffic to and from Mexico than Delta.
In addition to the strong performance by some of the Brazilian and Colombian carriers, Aero California has capitalised on rapidly growing leisure markets in Baja California, while LanChile has benefited from its takeover of Ladeco.
Caracas boost
Miami-Caracas has become the number one US-Latin city-pair, overtaking two US-Mexico markets (Table 3). Helped by the demise of Viasa, American has strengthened its grip, and now carries nearly 50 per cent of the traffic on the route. Avensa's low-cost subsidiary, Servivensa, has become a solid number two.
Los Angeles-Mexico City has fallen to number two. This is one of the few Latin routes where Delta is the leading carrier, but United has crept up to less than a percentage point behind.
Los Angeles-Guadalajara has also fallen in the market rankings. Once number two, it dropped to sixth place during the worst of the Peso crisis, and is now fourth.
Miami-Sao Paulo is the star mover of the top US-Latin markets, having gone from 11th to third place in five years as traffic more than doubled. United and Vasp have been the big beneficiaries, not American or Varig.
The most interesting development in the fifth-ranked route between Miami and Buenos Aires is that Aerolineas Argentinas has nearly tripled its market share at the expense of leading carriers American and United.
Miami-Cancun has moved up to sixth place. Cancun's tourism boom has helped to ensure that this is the only big market to have managed above-average growth every year for the past five years.
Deep south
Mexico City remains the largest Latin gateway to the US (Table 4). Cancun has been a steady number two based on local tourism, but one day it could also be a hubbing point for connecting long-haul services.
The surge in Sao Paulo's traffic to and from the US has propelled it from sixth to third in the Latin gateway rankings. Several carriers are sharing in its fruits. United, American, Vasp, Varig and Transbrasil have added or boosted service to New York, Dallas, Atlanta and Miami. Unlike any other city in the region, a significant portion of US-Sao Paulo traffic is carried by Japan Airlines and Korean Air from Los Angeles using fifth-freedom rights. Brazil's large Asian population represents a strong traffic draw for them.
Buenos Aires is the next largest Latin hub to have impressive growth, moving from the 10th to sixth most important gateway. Here Aerolineas is outpacing American and United, increasing its market share by over 10 points.
San Jose del Cabo on the southern tip of the Baja California peninsula is sustaining four newcomers - America West, Continental, American and Aeromexico - to the detriment of old hands Mexicana and Aeroejectivo.
Bogota has almost made it into the top 10, moving up from 14th to 11th. Continental has quickly become a player there, grabbing 13 per cent of the traffic within four years of starting services. American has lost nearly the same amount.
Troubled Latin gateways include Guatemala City, which has dropped from fifth to ninth, and San Jose, Costa Rica, which has dropped from ninth to 12th. Rio has suffered from the boom in direct flights to Sao Paulo and Brasilia, dropping from ninth to 14th place.
Emerging from nowhere
There has been no change in the ranking of top US gateways to Latin America (Table 5). Miami, Houston and Dallas had above average growth, boosted by their dominant carriers' hubs.
Smaller gateways like Phoenix, Newark, Atlanta, San Jose, St Louis, Oakland and Las Vegas are the real airport stories, emerging out of nowhere to become significant. Phoenix and Newark have bumped Washington/Dulles out of the top ten. Phoenix is America West's doing while Newark is Continental and Mexicana territory. St Louis' growth is due to TWA's foray into the region. Taesa has made Oakland into the fastest growing US hub to Latin America, with fivefold growth to almost 66,000 passengers a year.
Miami retains its dominant position as an entryway to Latin America, and handles 37 per cent of the traffic between the US and Latin America, making it the most dominant US gateway to any region of the world.
Explosive potential
With the Latin economies recovering from the Peso crisis, many US-Latin markets are moving strongly ahead. As the productive power and financial strength of the region grows and other parts of the world face difficulties this area has already learned from, Latin America is likely to emerge as a major world economic power.
Some of the steadiest aviation growth in Latin America is in leisure markets like Cancun and Baja California, but flows with the most explosive potential are those to business centres like Sao Paulo, Buenos Aires and Santiago. These markets will become stronger as trade barriers fall and the region's economic potential continues to attract attention. The next decade may indeed belong to Latin America.
Source: Airline Business
