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Why are airfares so expensive in Ecuador?? A question that is a trend in social networks and that has had a strong impact in traditional press media. En is fasting, we will try to answer this question so that anyone can understand the reason for these apparent, high prices of air tickets in Ecuador, explained in a simple way and without falling (we wait) in technicalisms.
We are not going to talk about RASK, Yield, ASK o ASM, We could analyze that at another time or situation to clarify this issue more technically..
Why is it so expensive to fly in Ecuador?
First, we must understand that the aviation industry is not a common or comparable industry with for example, the fare of an urban bus from any city in Ecuador that costs from $0.25 cents of the dollar upwards according to the route and distance.
Air transport is a complex business, full of parameters, variables and factors external and internal to the industry that daily affect the base cost of a ticket to any destination.
Now that we have indicated that it is a complex business full of parameters, we are going to talk about some factors that influence the determination of costs:
- internal factors
- Marketing objectives
- marketing strategies
- operating costs
- External factors
- Market and demand
- Competition
- Other factors (oil price, market rules and others)
- structural factors
- Population
- Distance between cities
- Alternative means of transportation
- Roads or infrastructure
These factors are essential to understand the prices of tickets in a country or region. Although we could analyze other determining factors, It is important to know that some of the main factors that determine the price of a ticket are: market and demand, competition, oil price and fixed costs. An additional factor that raises prices, are the taxes.
Mercado
As we have seen and it is public knowledge, in Ecuador there are only 3 domestic airlines operating. Although we are a small country, its population is numerous with more than 16 million inhabitants according to the census of 2015, but of these there are no more than 3 millions who fly.
Comparing it to other countries, like Chile, which is very similar in population to Ecuador, but with a higher purchasing power and a more dynamic air market, we are light years. Chile has more than 17 million and a half inhabitants, but with the same number of airlines flying domestically. So what's up?
In Chile during the 2017 almost flew 6 million passengers, twice as much as Ecuador. For years the Chilean market was dominated by LAN Chile (now LATAM) and far behind Sky Airline, but in the last 2 years the landscape changed. Sky evolved to low cost and a new ultra low cost airline called Jet Smart arrived, that in just 1 year of operations already transported 1 million passengers, truly amazing.
Then, in Ecuador and Chile there are 3 airlines, What's up? The situation goes through a stagnation of the Ecuadorian market, that for almost 10 year has the same airlines operating, that in one way or another have imposed their conditions and that has been generated by market conditions, they have not done any bad practice, the market has allowed it.
That the same airlines remain indirectly generates that demand is affected, since there is no dynamism that more competition would generate such as the creation of new schedules or new internal routes. They control the supply, raising or lowering seat capacity by route or frequency based on market fluctuations.
Remember that there have been other airlines in Ecuador that have taken off, but flown for short periods, but that due to their own administrative problems they have had to close and not because of the established airlines.
It's not bad to have 3 solid and domestically recognized airlines, in fact it is excellent for the user to have well-known airlines that remain over time, but the basic rules of competition and demand, they also tell us that in a market dominated by the same operators for a period of time it will generate a kind of stagnation. same routes, frequencies and destinations make current airlines compete on equal terms, but without risk.
In Ecuador there is market control, that can only be broken by allowing these same airlines to exploit new destinations and with the arrival of new competitors, but these new competitors will have to be strong, in order to maintain its operation and compete against 3 airlines more than strong.
More competition will force current airlines to improve their processes, be more efficient, but above all, lower your costs so as not to lose market, since it is known, that when a major new competitor enters a market, rates are reduced by more than one 30% and the market grows in a very similar number of passengers.
Oil price and operating costs
It's a seesaw of emotions. It is said that the price of oil, depending on the airline, plane or country can affect a significant part of the price of an air ticket. Ecuador is affected like the rest of the world by these ups and downs, although its influence is not necessarily strong, drives costs up.
when oil goes down, prices will not necessarily go down, since the airlines cover their operations with these extra income thinking about the future for complex situations of the market or their operation.
Our country has a subsidy combustible JET A1 for airports managed by the DGAC and municipal of Cuenca until 40%, what could benefit the user, but it will not always be like that as we already explained. It should be remembered that this benefit was not extended to Quito airports, Guayaquil and Galapagos.
A key point that affects the final cost of a ticket, are the operating and administrative costs that airlines have and allows them to determine how much a ticket costs between 2 points to cover these values. Wages, leases, maintenance of mobilization equipment, office furniture, structure, maintenance workshops, spare parts and others generate a high operational cost to the airline, than in Ecuador with the policies of, for example, importing spare parts, generates an increase in costs and time, that in the long run will be reflected in what the user pays.
Taxes
Taxes are a very long topic to detail or to try to understand its high margin in a domestic ticket in Ecuador. You must indicate that there are taxes (IVA, Eco Delta $50 dollars in international tickets issued in Ecuador), Tourist Power, etc) and airport taxes (what a passenger pays for the use of an airport, security, firemen, ATC, etc.)
For instance, if we quote a round trip ticket between Quito and Guayaquil with any airline we will see this breakdown:
- Rate (what the airline takes in money and where it will get its profitability) It is $40 Dollars.
- Taxes (IVA, rates, security, etc) It is $35 Dollars.
The total would be $75 Dollars, without the taxes we are talking about $40 dollars round trip, a rate that is undoubtedly attractive and would generate an increase in demand. Of course, taxes must exist, but the idea of this point is to inform that the cost of a ticket, according to the anticipation of purchase is a 55% actual cost of the ticket and 45% taxes.
Why are airfares so expensive in Ecuador??
With the quick exercise performed in the segment above, we can see that a ticket will not always be so expensive and a cost of $75 dollars is more than acceptable for our country, but those costs are often far away for most users, despite the fact that in neighboring countries a half-hour flight can cost around $40 round trip, It is the current reality of our country.
Tickets cost more than $400 dollars as many times users have complained, but that is due to the fare families with which the airlines legally sell tickets. A fare family is a kind of variables that are usually represented with letters Y/C/W/X/AA or other. These families allow the user to access various options and benefits such as promotional rates, fares with more bags or last minute fares. Emphasize that this practice is worldwide and the way of operating under a single cost in all seats on the plane has been left behind.
Fare families allow airlines to optimize their income and offer several alternatives according to the needs of each user.
Definitely, a last minute rate will be more expensive than one purchased months in advance. Too, airlines manage their income by offering cheaper tickets, which means that a plane of 100 passengers will have very low fares in 20 seating, while the rest of 80 seats will be distributed among the various available fares and the fewer available seats remain on the plane, the rate that you have to buy, will be higher.
With all that we have analyzed, Tickets in Ecuador are expensive due to lack of new competition that stimulates the market, regulate rates and generate an increase in supply. Taxes represent a large percentage of the value paid by the user, making a ticket more expensive, that with agreements between the State and administrators they could be reduced to encourage the market together with incentives for private administrators by the Government.
Together with the price of oil and the fixed costs of the airlines, they generate the current prices that users pay..
Definitely, the main factor is competition, with the arrival of more strong operators, prices will go down, for the benefit of the user, tourism and hundreds of jobs generated by air activity. Even, with the operation of other flight equipment you can return to the current or new, more efficient in managing their structures and this would be reflected in better rates, without reaching a low-cost operation.
Equally, it does not depend only on the airlines and the competition, if taxes are high and prices fall, we will end up paying more in taxes than in the actual cost that the airlines charge us.
There are hundreds of factors that determine a cost, even if Ecuador is dollarized, but I have tried to focus on the main and most important for this analysis thought of the general public.
*Clarification: The objective of this publication is to inform in an easy and clear way why the costs of a ticket in Ecuador, if errors were made in the use of terminology or concepts of economics, the apologies of the case. I would like to know the opinion of the airlines on this publication and their point of view.
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Hello, I loved the post, Where can I find more information on this topic??, Please I request it for a degree work.
Hello Santiago, all the information that you find here is what I have available based on my own research and knowledge.
I am a French who lives in Quito. My friends wanted to visit me from France. but the quotas too expensive. They are not going to come and prefer to visit Costa Rica with tickets une 60% but cheap. What a pity for tourism in this country.
How sad what you tell us Philippe. Costa Rica is cheaper because it has much more connectivity, more airlines and options, that makes prices go down, our case is the opposite.
Who we are more than 20 years in this industry the prices became unsustainable due to the elimination of the fuel subsidy that makes it unattractive and too many taxes
Yes and no, Remember that few countries in the world have this subsidy and the price of the tickets does not reach the levels of our country. Subsidies should not exist in general and the market should regulate itself.
Flights in the country are excessively high, Compared to other Latin American countries, and I don't even know about European countries, where you usually find flights from 15 euros. They should cut taxes, This would increase the demand for flights.!
That would be a good step to promote tourism both locally and outside the country..
Completely, but it must also go hand in hand with a greater supply.
I like to travel every year to my country but Peruvian flights are less expensive than in my Ecuador, hopefully they can remedy this
More competition is needed to solve the price issue.
interesting analysis, but I think that to understand the pricing, we must understand the factors that affect the costs incurred in the aviation activity, is so a 34% of your expenses are in fuel, a 29% in administrative staff, service and flight, a 12% are maintenance expenses, a 11% on aircraft lease, among the most important. The ones that best manage these variables, They will achieve better profit margins., being more competitive and efficient. For this, a revenue management system is essential, together with a clear differentiation in its quality of services and its offer of rates.
Thanks for your contribution Paul..
Dear Friends, The factors that intervene in the prices of the tickets are administrative and operational. This is too long to explain, but, the more bureaucracy or administrative staff, the higher prices to cover the percentage of those costs, and, Regarding the operational, we have the aeronautical costs and the direct operational costs.. If we start to analyze each of these costs, maybe we can save s TAME. The economic study is very long and extensive, administrative and operational of an air transport company to determine the prices of the tickets in each one of the routes. However, one of the MOST IMPORTANT FACTORS to succeed in air transport is THE TOTAL AND INTEGRAL CUSTOMER SERVICE
According to a report several years ago from the Visión 360, In Ecuador, the DGAC finances the operations of smaller airports (underutilized in most cases) with the taxes and charges that are charged to the two large airports that the country has (Gye and Uio). It seems that this panorama has not changed. I agree with you that greater competition will help lower prices and make us a more visited country.
I do not understand, They said that the DGAC finances the airports that they manage with the rates of Quito and Guayaquil?
If prices are prices. Taxes are almost 50 percent of the fee. I don't understand why they are so tall, for having concessioned airports?
It is the cost paid for the services of those airports.
In the end you make it clear that the tickets are expensive but that this is the correct value for the use of the airport. I still don't understand why there are flights from other countries $30 and $40 even without anticipation (non-oil countries). My perception is that the three aforementioned airlines together with the main airports in the country own the market and do not allow anyone to compete with them..
Observation, in Ecuador there is already 4 airlines. Prices have already been going down with more competition and the maximum ceilings are going down, only the competition that is increasing allows this, so you indicate that they do not let anyone compete with them does not make sense, since the airports themselves benefit from more passengers, the objective and direction of your business.
Flight prices to Ecuador are absurdly illogical, I try to buy a flight from Mexico to Quito I cannot understand how from Mexico to Lima it is much cheaper than to Quito a margin of 40 % less than Quito, and the flights with a layover are ironically in Lima. They have to restructure the airline system in Ecuador as it may affect the country's tourism sector
I was consulting a rate to travel to Bogotá from Quito with Avianca around March 2019. Such was my disappointment to see that a passage on that route has a derisory and absurd cost of $600 and peak dollars!!!!! I understand that the Ecuadorian air market is delicate and slow growing., but a ticket for such a short route at that price seems totally unreasonable to me.
Try the other airlines that operate on that route.
Excellent!!!!
What if I ask myself a question is why Tame say that it has a better service on international flights than on national ones? If the delicate situation is true (and that little by little he recovers) leads to delays for various reasons. But I have seen some comments of that nature, truth is that it does 5 years that I flew with them abroad, and I see that in some comments on the Tame Fan Page….some congratulating their service both nationally and internationally, but that within that scheme, local ops have the most problems.
With all the post is very illustrative.
Congratulations.
Bernard.
ok Nicholas, however, TAME can offer other incentives such as points for frequent users that the more they accumulate translates into savings or another business strategy without diminishing the recovery but at the same time earning more quota. Avianca and LATAM can do the same, but one of the three must take the initiative if they want to have greater participation and financial benefits..
Guillermo I see what airports in Quito, Guayaquil and Galapagos are modernized and have a higher degree of development and infrastructure than others, require more investment, they are more expensive to operate therefore higher rates. The airlines as there are no passengers to cover the minimum 70% of occupancy recharge the passenger so as not to lose, That's why a low-cost airline would be good.
Because the rates charged by airports, as I said in a previous post, are the most expensive in the world. 17.87 guayaquil 10.31 and international rates added all rates as ecodelta 113.57 so the airlines have to transfer the taxes to the user.
My wife traveled two weeks ago to Cuenca and went to the 30% in lan and last week we traveled to galapagos and lan's plane 50 empty.
viva air wants to operate in ecuador but not with so many taxes meanwhile airports like cotopaxi and tena without use and the others except quito guayaquil and galapagos lose many millions a year
As it is a kind of monopoly by TAME, Avianca and LATAM think that the first one should take the initiative so that there are more attractive costs for the user.
TAME is the flag airline that reaches national destinations that Avianca and LATAM do not reach, such as Lago Agrio, Santa Rosa or Esmeraldas. Although it is true that it is in the process of financial restructuring, it is also an opportunity to lower the cost of the tickets as much as possible., gain market share and consolidate itself as the best rate option in the face of the competition.
For Tame it is a delicate situation, you need to increase your income, regaining market share, but neither lowering their tickets, that would impair your recovery, it should be cheap.