One year since the pandemic first began, the air crisis in Latin America worsens. Concerned experts say that due to the damage caused by the Coronavirus, many airlines will disappear and that the number of flights from the region to the United States and Europe will not coincide with those of 2019 before 2023. So, the question that arises is how are the big 4 Latin carriers coping with the pandemic?
Last year’s economic crisis resulted in losses of 42 thousand 529 million pesos. (1 and a half million pounds approx.) The Mexican giant announced on June 30, 2020 that they had initiated a process of financial restructuring under Chapter 11 of the United States Bankruptcy Law. This process continues as the company managed to reduce labour commitments, reduce the workforce, and ensure access to financing for up to one billion dollars. Currently AeroMexico has decided to reduce their fleet of 127 aircraft to approximately only 80. The ‘Eagle warrior’ airline predicts to increase the use of these aircraft by 70% during 2021, 84% in 2022 and 94% by 2023. However, these figures may be far from ever becoming a reality given the lack of support from the Mexican government to the industry, forcing the Mexican airline to generate more expenses.
The Colombian airline had a favourable take-off with clear skies to celebrate their 100th anniversary, but unfortunately the centennial flight was affected not only by the pandemic, which simply aggravated a time bomb that the airline was already facing, but also by the financial crisis and large debts. The fact is that the Colombian carrier had very weak finances, forcing the group to request a loan from United Airlines and Kingsland Holdings for $250 million dollars. Despite following in AeroMexico’s footsteps and accepting Chapter 11, the reality is that the future of the Latin American giant is everything but certain. Recently KPMG warned that Avianca probably will not survive the crisis, it seems like Avianca has become the protagonist of Garcia Marquez’s work in ‘Chronicle of a death foretold’ and only time will tell if this is true.
LATAM- Chile and Brazil
An airline that was generating great expectations, from the investment by Qatar Airways to the acquisition of the A350’s. Today, the “flag” airline of South America is going through a turbulence that is far from over. Although, LATAM recently announced a joint venture with Delta Airlines, the South American airline recorded losses of $4,550 million US dollars, and even though the South American giant accepted Chapter 11, their recovery is expected to be very slow compared to their peers given that they control subsidiaries in Argentina, Colombia, Ecuador, and Peru. Unlike AeroMexico and Avianca, LATAM began the crisis with a stable portfolio. However, their market overall had more dramatic falls in demand than those in Mexico and Colombia, closely linked to the factor of border closure that most of the South American countries carried out as measures to control the virus.
Copa Airlines- Panama.
One year after Panama’s government ordered the closure of the Central American “Hub of the Americas”, the carrier has had a very slow recovery, and although they have the support of United Airlines. This has not been enough to be able to strongly face the crisis. In fact, in April 2020 Copa announced that they did not have enough liquidity to survive the health crisis. Forcing the Panamanian government to be more flexible and authorize the airline to resume operations as this became their only lifeline. Currently Copa registered a loss of 598 million US dollars for the 2020 fiscal year, operating only at 27% of capacity. Much like AeroMexico, the Panamanian carrier reduced their fleet from 102 aircraft to 75. Despite these measures, Pedro Heilbron (CEO) recognizes that the current market trends do not favour them at all, and it is very likely that they will again face a portfolio situation like the one they had a year ago.
And now… what’s next?
Although the Big 4 have made titanic efforts so far, such as availing themselves of chapter 11 to face the crisis, the reality is that the turbulence seems to be prolonged, and the seat belt sign is far from being turned off. Even if Chapter 11 gives them a “kind” of oxygen mask, everything indicates that Avianca, AeroMexico and LATAM will have to delay their exit from the said chapter, and thus be able to protect themselves from creditors at a time of great demand uncertainty. On the other hand, even when Copa seems to have a more favourable situation, its “hub-spoke” business model can play against them, since they depend more on international connections and given the decisions of many different nations to close borders, they force the Panamanian airline to continue tightening its belt.
Furthermore, independent analysts share the idea that the air market will take a long time to recover, and according to Peter Cerda, vice president of Air Transport in Latin America, demand levels in the region will not reach those of 2019 before 2023. Although Latin America was already the least attractive region for airlines to operate in, due to the volatility of currencies, the tax burden, the recent economic crisis in Brazil and the lack of support from local governments towards the industry. The Latin market has always had great potential, which explains the large investments that both Delta Airlines and United have made in the region, so the reduction in flights in Latin America will also significantly affect world air trade – so that is why it is important to keep an eye on the Latin market and its performance.
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Photos used in this article:
- ‘AeroMéxico Boeing 767-200; XA-FRJ@VCV;02.02.2016‘ by Aero Icarus. Licensed under CC BY-NC-SA 2.0. Image cropped.
- ‘N784AV Avianca Boeing 787-8 Dreamliner departing to Bogota (BIG) @ Madrid – Barajas (MAD) / 22.08.2015‘ by Oliver Holzbauer. Licensed under CC BY-SA 2.0. No changes made.
- ‘A319 LATAM SBPA‘ by Rafael Luiz Canossa. Licensed under CC BY-SA 2.0. No changes made.
- ‘Copa Airlines Tails‘ by Aeroprints. Licensed under CC BY-SA 3.0. No changes made.