For many, the image of aviation in Latin America is an elderly DC3 struggling to get over the Andes prior to landing at a remote mountain airstrip where the only GSE in evidence are a couple of mules. But things have moved on, as Chris Lewis discovers…
The reality in most places in this region is a lot more prosaic, not to say a great deal safer and more reliable – generally it boasts large modern airports, terminals and aircraft, backed up by efficient IT systems with Internet and mobile phone signals as good as anything in Seattle or Stuttgart.
Air travel is also booming. The Latin American and Caribbean Air Transport Association (ALTA) – which includes most of the region’s major scheduled carriers – said in a report published on 8 August that Latin American and Caribbean airlines carried 13 million passengers in June, up 5.5% from the previous year, the 70th consecutive month of passenger traffic growth for carriers in the region.
Over the first six months of 2017, growth was even more marked, with a total of just over 78 million passengers, up 9% on the same period of 2016, when 71.6 million were carried.
Cargo traffic fared slightly less well, down 1.8% for the first six months of 2017 compared with the same period of 2016.
Aviation in the region has huge potential. Like other developing regions, there is a growing middle class and hence an increased appetite for travel. But there is one important difference. Whereas in other parts of the world, roads and railways take a large chunk of the travel market, aviation has always been important in Latin America thanks to its geography – the Andes and the Amazon are major barriers to surface transport.
David Kennedy, chief executive of US-based airport technology company Quantum, says his firm does a lot of business in Latin America and that the region is at a particularly interesting stage.
“A lot of consolidation took place in the airlines five years ago including the creation of the airline Latam, and now that merger has matured and economies have recovered. There’s also an expectation among customers of things like baggage tracking or faster turnarounds of aircraft.”
While there are a handful of areas where the economy is continuing to cause problems, notably crisis-hit Venezuela, in the main there has been a lot of interesting growth in the region, he says.
Countries like Argentina have also had their difficulties in the recent past, but now seem to be moving forward, Kennedy believes; the same is true of Peru, Chile and Ecuador.
Moreover, as in other parts of the developing world, the region’s airports have been able to perform a ‘technological leapfrog’ – they are able to install advanced new technology from scratch rather than grapple with the problems of adapting legacy computer and IT systems. Paradoxically, says Kennedy, there are more opportunities in the region precisely because its technology has historically lagged behind that of the West.
Take IT and systems, for example. Quantum can use a mixture of wi-fi or cellular connectivity for its systems, connecting to its hosted network where most of its processing is done. These days, systems are not entirely dependent on the availability of broadband or a strong wi-fi signal – cellular systems are a perfectly viable alternative.
However, Latin America has never suffered the infrastructure and developmental problems of some other places, notably Africa, says Kennedy. Investment in airport infrastructure, while not on a par with the rapid pace in Asia, is fast catching up, he considers.
Latin America does have continuing issues with red tape and bureaucracy, but even here things are progressing, he adds. The region is following a similar trajectory to India, which has made great strides in becoming an easier place in which to do business.
The environment for international companies active in the region is vastly better than a few years ago, thanks in no small part to trade agreements such as Nafta and Mercosur. “For us, doing business in Mexico is almost like working in another US state,” says Kennedy. “I just have to remember to take my passport.”
While US President Trump has warned that he plans to tear up such trade deals in the interests of “protecting US jobs”, the hope is that people will take a pragmatic view and that the barriers will not suddenly go up again.
It should also be pointed out that Quantum’s work in Latin America supports a good many high-quality jobs in the US, too.
That said, statements such as Trump’s can affect general business sentiment and increase uncertainty.
Quantum has done a lot of work with Latam – the international carrier formed in 2012 by the merger of Chile’s LAN Airlines and Brazil’s TAM Airlines – and this has given its business momentum in the region.
The good work started by Latam has also been continued by the new-generation value carriers that have lately emerged, such as Azul in Brazil and Mexico’s Interjet. “We’ve also just done a big baggage project with Volaris in Mexico,” Kennedy explains.
The new carriers have learned from the experience of their counterparts in North America and the concept of the value carrier has since evolved from the ‘low cost, at any cost’ model that they started out with, says Kennedy. “These are well-funded operators and they are willing to spend money, on making themselves more efficient, or in giving them a marketing advantage. Also, they are willing to look at things differently. Volaris, for example, has some very advanced systems.”
Whereas the low-cost carriers as originally conceived in Europe or North America almost made it a point of honour not to use major hub airports, in Latin America many of them do use the big gateways and their services are on a par with those of the legacy carriers.
Kennedy sees the development of the region’s airport infrastructure mainly in terms of expanded operations and new terminals at existing hubs, rather than brand new airports. This is perhaps because aviation has always been relatively important to Latin America compared with other modes of transport. Most towns and cities of any size already have their own airports, albeit fairly rudimentary ones in some cases.
What there will be are greatly expanded opportunities in areas such as check-in, baggage handling and ground support equipment (GSE), Kennedy believes.
“There are opportunities for Quantum here,” he says. “Take GSE, for example. A lot of airports had what were basically farm tractors, but now airlines want to modernise their GSE to bring it into line with what they have in other parts of the world, and with that goes the management of the equipment.”
Another driver is the consolidation in the handling sector; some of the big international players like dnata and WFS have moved into Latin America. “That changes the market, because not only does it consolidate the customer base, but they also bring their own expectations and want to get rid of old equipment and processes.”
Focus on Brazil
Francisco Gonçalves, head of commercial at Proair Airport Services in Brazil, also confirms that prospects for the aviation sector remain bright. International carriers that have announced plans to operate in the country include FlyBiondi from Argentina and LOT from Poland.
Others, such as Alitalia, Air China, British Airways and Ethiopian Airlines, have announced increased frequencies for the last quarter of 2017 or beginning of 2018, which “demonstrates the full confidence in the country’s economy and passenger traffic growth for the near future”, says Gonçalves.
ProAir has new handling contracts with Latam Airlines, Sideral Airlines (a freighter operation), Avianca Brazil and GOL Airlines, among others.
Qatar and Lufthansa have also launched requests for proposals for São Paulo International and Rio de Janeiro–Antonio Carlos Jobim International respectively.
Gonçalves sees the south-eastern region of the country driving traffic growth due to the consolidation of passenger traffic and the slight recovery in the economy, which has improved prospects for business travel.
He adds: “In parallel, regional airports will have massive investments supported by the federal government and private companies which would reinforce business opportunities all over the country.”
The handling market has changed over the last few years, he observes, and continued consolidation should help maintain the pace in future.
Another important factor is new labour legislation that went into effect on 11 November and which, among other things, confirms the legal status of outsourced operations. Airlines might well view this as a new opportunity for cost reduction by outsourcing passenger handling services at some airports.
A total of 12 airports have been chosen by the Federal Government for privatisation in 2018: Aracaju–Santa Maria, Campina Grande (Presidente João Suassuna), João Pesso (Presidente Castro Pinto), Juazeiro do Norte (Orlando Bezerra de Menezes), Maceió (Zumbi dos Palmares), Recife (Guararapes-Gilberto Freyre) in the north-east; Alta Floresta, Barra Do Garcas, Cuiabá (Marechal Rondon) and Sinop (Presidente João Figueiredo) in the midwestern region; and Vitória (Eurico de Aguiar Salles) and Macaé (Benedito Lacerda) in the south-east.
There is, in addition, an ongoing study into the possibility of privatising São Paulo/Congonhas.