There have been recent airline casualties in the South American commercial air-transport industry's struggle to find its feet - a scrap which continues today. Although traffic is growing fast in this market, there is a clear need for restructuring what has traditionally been a fragmented and unprofitable airline sector. According to Dr Gustavo Alberto Lenis, president of Colombia's primary airline, Aerovias Nacionales de Colombia (Avianca), the essential requirement for a successful future in the region is consolidation. There is no sign, however, that his advice is being heeded.
As Avianca is the second-oldest airline in the world and strategically well-structured to face the future, Lenis might be expected to feel that the carrier he runs has established itself unassailably in its marketplace. The world is changing too fast for anyone to feel secure, however, Lenis says, explaining that South America "-is facing what the USA and Europe used to face".
Painful cuts
Nevertheless, Lenis says that things are looking up for privately owned Avianca, explaining: "We have been expanding in a very conservative way. We have to grow step by step. Most airlines which grew too fast failed." He insists that he has no plans to enlarge the carrier's fleet in the short term.
Avianca is privately owned and always has been, although it is the de facto national carrier. Today, it operates three Boeing 767-200ERs and one -300ER, 11 McDonnell Douglas MD-83s (which are the domestic and short-range international workhorses) four Boeing 757s, two Boeing 727s and ten Fokker 50 Mk300s for regional work. International European routes are Bogota to Madrid in Spain, and Paris in France. North American points served are Los Angeles, Miami and New York and, in South America, Avianca flies to almost all major or capital cities: Buenos Aires, Argentina; Caracas, Venezuela; Lima, Peru; Manaus and Rio de Janeiro, Brazil; Quito, Ecuador; and Santiago, Chile. Avianca's wholly owned, Medellin-based, domestic/regional subsidiary, SAM Colombia, is now effectively merged with the main carrier, according to Lenis, formerly SAM's president and now Avianca's. SAM operates a comprehensive internal network using some of the Fokker 50s and the 727s, but also has a fleet of ten AI(R) Avro RJ-100s.
Avianca's forebears began operating in 1919, and the airline grew continuously until Colombia deregulated its domestic commercial air-transport marketplace in 1990. At about that time, progressive international and domestic liberalisation had become firmly established within Latin America and in relations with North America. Ten years ago, Lenis points out, Avianca's workforce was 11,000, which was, as he puts it, "oversized". Today, the total number of employees is 3,200. A decade ago, the fleet contained four Boeing 747s, one of them a freighter; today the largest aircraft in the fleet is its single Boeing 767-300ER, and the only other widebodies in the fleet are three 767-200ERs.
The cuts caused "a lot of pain", says Lenis, but were forced on Avianca by domestic and international competition which drove the Bogota-based airline into losses. Once, Avianca was Colombia's only carrier; now it is the nation's only major international airline. The only international exception is Medellin-based Aerolineas Centrales de Colombia (ACES) which, although mainly a domestic operator, flies to Miami, in the USA, and to Puerto Rico.
The fact that Viasa Venezuelan International Airlines has declared bankruptcy and receivers are being appointed is testimony to the difficulty of life in the South American market. Lenis says that he does not see Viasa re-emerging in any form without solving "its labour problems".
No-one is having an easy time, says Lenis, not even such a prominent carrier as Brazil's Varig. Meanwhile, Ecuador's Ecuatoriana has, as Lenis puts it, been "grounded" for three years. Fellow Ecuadorian airline SAETA took its pick of Ecuatoriana's routes, and its majority shareholder, the Brazilian carrier VASP, is operating some of the remaining services with one aircraft. Also during the past 12 months, Lan Chile, smarting from a withdrawal of Iberia's equity, has put Ladeco Chilean Airlines into administration.
Traffic increases
Given the apparent promise of the South American market , this all seems slightly unreal. Passenger traffic is increasing at well above the world average rate, both internationally within the continent, and to Europe and North America. The International Air Transport Association (IATA) 1995 figures for growth in those three route areas are, respectively, 12.5%, 19.9% and 19.4%. Internationally within South America, however, capacity measured in available seat-kilometres (ASK) has burgeoned, showing a growth rate of 31.3%, presumably because of competition. The routes to Europe and North America look better, with ASKs growing more slowly than passenger traffic.
Lenis believes that the future of air transport in Latin America lies in strategic alliances, but notes that there is precious little co-operation in the continent. "It is incredible, if you see the way the world is heading, but we just don't talk to each other," he remarks, adding: "Consolidation should be the route to survival." He believes that the South American carriers will be forced to talk to each other eventually. "We have to look for alliances. We have to look to the big groups," he says. Avianca's only intra-Latin-American codeshare agreement is with privately owned SAETA, based in Quito, Ecuador.
American codeshare
Lenis signalled his belief in alliances in December 1996 by setting up a codeshare with American Airlines, the most powerful link between North and South America. He remarks: "American's domination is a risk you have to take. You cannot be alone." American operates direct flights from the USA to Bogota, Barranquilla and Cali in Colombia, but Lenis hopes that it will connect with Avianca's domestic network via Bogota if Avianca connects with American via Miami. Already, he points out, 60% of Avianca's passengers to Miami use that airport to change flights.
Many South American carriers are looking for some form of link with American, according to Airline Business magazine which notes, however, that Varig has dumped its agreement with Delta Air Lines (because Delta filed for its own Brazilian routes) in favour of one with United Airlines. United has declared its firm intention to go all-out for what it sees as the highly desirable South American market.
Meanwhile, Lenis says that, within South America, he would like to see centralised route planning to achieve a more efficient continental network. He would also like to see co-operation on spares holdings and insurance buying.
Avianca has advantages over competitors, particularly domestic ones, Lenis claims. He explains: "When we see a route, we operate it in a profitable way or we walk out. You can no longer fly just to keep your aircraft in the air." Avianca has a younger fleet than those of the opposition, and Lenis believes that, with slender or non-existent margins, "-it will be difficult for them to update their equipment".
Source: Flight International
