IATA: infrastructure, costs and the regulatory framework need to be the focus for Latin America and Caribbean governments

The International Air Transport Association (IATA) has called on the governments of Latin America and the Caribbean to focus on infrastructure, costs and the region’s regulatory framework to help maximise the economic and social benefits of aviation while accommodating the region’s expanding demand for air connectivity. Aviation already plays an important role in the region’s economy, employing some five million people and supporting USD170 billion in GDP.

“We need effective infrastructure to accommodate growth; reasonable costs and taxes that don’t kill it; and a modern regulatory framework that supports it,” says Alexandre de Juniac, director general and CEO of the global airline body.

Demand for air travel is outpacing both airport capacity growth and the upgrades to air traffic management systems. In the last decade the number of passengers carried by the region’s airlines has more than doubled.

CHART – There was a clear rise in Latin American system seats last year and that growth is continuing in 2018 based on current published schedulesSource: CAPA – Centre for Aviation and OAG (data: w/c 02-Apr-2018)

IATA called for the region’s governments to work with industry to develop a long-term strategy that will ensure sufficient capacity, affordable costs and service and technical expertise aligned with user needs. Demand for air travel is outpacing both airport capacity growth and the upgrades to air traffic management systems. In the last decade the number of passengers carried by the region’s airlines has more than doubled.

The region’s key capacity challenges, according to IATA are Buenos Aires, Bogota, Lima, Mexico City, Havana and Santiago. “Unless they are addressed, Latin American economies will suffer. If planes cannot land, the economic benefits that they bring will fly elsewhere,” says Mr de Juniac.

By 2036, IATA forecasts expect more than 750 million journeys will touch the region. “Without concerted action today, we are headed towards a crisis,” says Mr de Juniac, highlighting Mexico City and Santiago as the most pressing.

CHART – Mexico City’s Aeropuerto Internacional Benito Juárez is the largest airport across Latin America with a current weekly system capacity of beyond 1.1 million seatsSource: CAPA – Centre for Aviation and OAG (data: w/c 02-Apr-2018)

Mexico City is described by IATA as “the most critical of the bottlenecks”. The current airport was designed for 32 million passengers annually but already serves 47 million. Meanwhile, in Santiago much-needed airport terminal capacity is being built but transparency is lacking, service levels are suffering and user costs are increasing. This, says IATA, threatens to upend the long-standing partnership between government, airlines and other stakeholders that helped create one the most advanced air transport hubs in the region and a thriving tourism industry.

In terms of costs most airlines would agree that Latin America and the Caribbean is an expensive place to do business. Taxes, fees, and government policies create a great burden. “Today governments see aviation as a revenue source. But it is more powerful as a revenue catalyst. Reducing the costs of doing business will pay big economic and social dividends,” says Mr de Juniac.

IATA cites several areas where the cost burden of government policies and taxes is excessive and counter-productive:

  • Brazil’s fuel pricing policy adds USD800 million in costs annually.
  • Ecuador and Colombia suffer from the exorbitant costs charged by monopoly fuel suppliers—made all the worse in Ecuador where there also is a 5% fuel tax.
  • Colombia has a connectivity tax, an exit tax and now the municipal mayors are planning to tax air travellers USD5.00 to subsidise road infrastructure.
  • Argentina has high passenger fees made worse by the monopoly pricing and poor service of its only ground handling company.
  • In St Lucia, taxes and fees (including the Airport Development Fee) are rising in order to repair roads and construct a cruise ship terminal.
  • Tourism taxes are rash across the region (Mexico, Colombia, Ecuador, Peru, Nicaragua, Jamaica and Costa Rica and St. Lucia), deterring tourists with higher costs.

CHART – The Caribbean market is dominated by North American airlines and it is unsurprising to learn that the United States of America (USA) is the largest international market accounting for more than a fifth of seatsSource: CAPA – Centre for Aviation and OAG (data: w/c 02-Apr-2018)

IATA is also calling for governments across the region to evolve a modern regulatory structure with a focus on “harmonisation and mutual recognition of standards”. While the region has been a pioneer in the evolution of trans-national brands, nationally-based regulation limits potential efficiency gains, says the association. As an example it highlights that technical crew and aircraft cannot be utilised flexibly to maximum efficiency because safety policies do not recognise common standards across the region.

“Safety is our top priority. But safety is not improved with redundant processes. If an airline’s crew is certified to a commonly agreed standard in Peru, is there a safety reason to prohibit them from operating domestically on routes in Argentina? Or vice versa? And if an aircraft is certified in Brazil to a commonly agreed standard, why should it need to be re-registered in Chile to operate?” says Mr de Juniac.

IATA is calling for a comprehensive dialogue among the governments and airlines of the region to look for “the efficiencies that can be generated through mutual recognition of common standards”. Aviation already generates enormous benefits in Latin America and the Caribbean, but as Mr de Juniac notes: ” For aviation to meet the upcoming passenger demand and deliver the economic and social benefits it is truly capable of, governments need to work together with the industry to help ensure they are realised”.