The Economist: “Why the continent’s (South America) airlines are losing so much money”

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The Economist ran an interesting piece about the state of the airlines (dire) in South America that are often inept and government controlled.

The Economist South American Airlines

There is LATAM (previously called LAN & TAM) that has subsidiaries in a number of countries in addition to Brazil and Chile, and Avianca also operates around the continent. Both of these two airlines are private.

You can access the Economist piece here of which below is an excerpt:

Even without the drag of state ownership, other South American airlines have recently either lost money or made only meagre profits (see chart). Airlines in Latin America as a whole (whose performance is flattered by the inclusion of Mexico’s mostly profitable flyers) even surpassed Africa’s beleaguered carriers in their ability to lose money in 2015, according to IATA, an industry body. That marks them out at a time when the tailwinds of growing passenger numbers and cheap fuel have carried many other airlines to unusual heights of profitability.

The region’s airlines don’t lose money because flights are cheap. Air fares are eye-wateringly pricey—an internal flight in Brazil can cost as much as one to Europe. Travellers have not benefited from the ascent of low-cost carriers (LCCs) because budget airlines are thin on the ground. Outside Brazil’s domestic market, where Azul and Gol carry passengers between the country’s far-flung cities, there are few LCCs and their impact has been limited. As a result, the continent’s growing middle-classes have not taken to the skies as enthusiastically as in the rest of the world.

Conclusion

There is the lack of LCCs in South America when compared to Europe and Asia, but I wouldn’t agree that the airfares within Brazil are always expensive. If you can plan ahead and choose between airports, the air fares at least between the popular cities are often dirt cheap.

The air fares between non-competitive routes can be very expensive however, when taking the flight distances into account. You may be asked to pay $500 for 30 minute flight from Mendoza to Santiago de Chile (I used Avios).

It is just remarkable that the Latin American airlines managed to lose $1.5B when airlines in other regions are making “huge” profits.

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