The effects of the crisis on aviation in South America

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In this delivery we review a report of OAG referring to the effects of the crisis generated by the COVID-19 in aviation About America.

One of the most important aviation analytics portals last week presented a detailed report regarding the effects that the global health crisis will have on the delicate aviation airline industry in Sur America, within a complex recovery panorama.

With the countries in the region still closed, where there is only Flights in Ecuador, Chile and Brazil, This panorama poses a significant challenge to industry players., that between the known measures and few options to get out of this situation, they find each other: Help of governments (minimal aid to the sector and tourism), fleet reduction, payroll adjustment and even, close operations.

With a recovery that will be slow and painful (especially for workers), taking into account that it could take more than 4 years according to IATA, South America is one of the regions most affected worldwide by the drop in air traffic and this is confirmed by OAG statistical data.:

From the first week of April, scheduled flights to and from the ten largest markets in South America have decreased by between 80% and a 90% compared to a back. The fall occurred suddenly and, usually, has not yet shown signs of recovery.

For now, Argentina, Colombia and Peru have less than 3% of the operations that took place a year ago; aviation is practically stagnant. Brazil and Chile are doing a little better, with the 20% Of capacity. Only Bolivia and Venezuela have limited the impact to less than 50% of the flights, but these are significantly smaller markets.

Nevertheless, in these 10 south american countries, national capacity represented the 80% of all airline seats in 2019, However, even Brazil, With its great domestic market, has seen a massive drop in airline activity.

In the last weeks, both LATAM and Avianca have entered Chapter 11. While Latam can arise with the help of solidarity shareholders, the situation for Avianca is less clear. The airline spent much of the debt restructuring 2019 and suffered the most when the Colombian government closed Colombian airspace in response to COVID-19. Smaller but important for Ecuador, TAME also stopped operating in May when the Ecuadorian government decided to liquidate the airline.

On 2019, These three airlines contributed to the 43% of all the programmed capacity in these 10 countries. No wonder aviation is faltering. In Brazil, the largest market so far, They have represented a third of all the capacity, But elsewhere, In colombia, Chile and Peru, three out of five seats or more operated. Their disappearance if they do not emerge from bankruptcy protection will leave a significant hole in South American aviation.

A look at Ecuador, for instance, shows that the country has more potential for air services than is recognized by the actual services that have been operating. From 2010, commercial capacity averaged a decrease of 2.8% every year. By contrast, Neighboring Peru has seen its capacity grow on average in 10.5% every year. Bolivia, Chile, Colombia and Argentina have also experienced growth of more than 5% annual.

Regarding the average propensity to fly to Ecuador, expressed as a ratio of the number of airline reservations to the size of the population, Ecuador, together with Argentina, Uruguay, Paraguay and Venezuela, everyone could have grown without pandemic.

As in any other place, aviation in South America is in the middle of a big shock. It is too early to have an idea of ​​what the market will be like in a year, or two or three. Nevertheless, The fault, or the potential failure, Of some important players has the potential to create new opportunities for investors who can look at this market with new eyes.

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