JetSMART’s introduction of the ultra low cost model in Chile has not triggered a major competitive disruption in the market as the country’s two largest airlines have adapted their models in order navigate Chile’s new competitive reality.
Backed by Indigo Partners, JetSMART made its debut in Chile during Jul-2017 and at YE2017 the airline had transported 333,914 passengers, achieving a 2.9% domestic share. LATAM Airlines Group and Sky remain Chile’s largest domestic airlines, posting 2017 domestic passenger shares of 69% and 27%, respectively.
JetSMART has always maintained its strategy was passenger stimulation, rather than stealing share from other airlines. Chile’s total passenger levels increased 11% year-on-year in 2017 to 22 million and domestic passenger growth reached 7% to 11.6 million. Sky, which has transitioned to a low cost model, logged 13.8% growth in domestic passengers to 3.1 million.
LATAM Airlines Group executives recently stated that while it has seen “a substantial increase in capacity in domestic Chile, we have seen a relatively good response from the market”. Data from CAPA and OAG show an increase in Chile’s domestic ASKs in 1H2018, particularly early in the year.
The company noted it had altered its strategy in Chile, opting to sell one-way fares in the domestic market. LATAM during 2017 introduced a new pricing model in its domestic markets within South America, with the lowest tier featuring fewer amenities. Previously, LATAM stated fares within the new pricing structure would be 20% cheaper, and its new strategy would increase passenger numbers roughly 50% on domestic routes by 2020.
LATAM has concluded its load factors in Chile are “very high”, noting it was comfortable that its new sales model and revenue management strategy are performing favourably. “…we feel relatively comfortable today in the current market situation in domestic Chile”. the company stated.