Video of the week – An overview of LCC development In Latin America

The Latin American aviation sector has been facing some challenges of late, but some stability is now helping the industry to grow, and the LCC sector is particularly driving development as the model continues its evolution in this emerging market.

ALTA, the Latin American and Caribbean Air Transport Association, has reported that passenger traffic levels among its airline members across these regions grew 5.7% in 2018, the highest growth since 2015 and the 15th consecutive year of annual growth.

This performance highlights the continued recovery of the industry with a growth level close to five percentage points above the economy of the region, where GDP reached a 1.2% growth compared to 2017, according to IMF. In total, Latin American and Caribbean airlines carried 295.5 million passengers in 2018, traffic (RPK) grew 7.6% and capacity (ASK) increased 7.9%, delivering an average load factor to 81.7%.

The LCC sector undoubtedly is confronted with the greatest global expansion opportunity in Latin America as hundreds of millions of people enter the middle class across the region. Huge new travel markets await. Across the region, second tier cities are emerging that offer great promise to LCCs as flag carriers defend their traditional hubs.

But how do the region’s fledgling LCCs stay true to their business model of high efficiency? How can they drive the next step change in unit cost (CASK) reduction? Will it be driven by new aircraft technology, better supplier deals, greater operational flexibility or a combination of these?

Today, LCCs operate the majority of seats in the two largest domestic air travel markets of Brazil and Mexico and have a growing presence in Chile and Colombia. Yet LCCs also face inherent difficulties in achieving meaningful growth in this region, because of factors such as long distances between large O&D markets (where sector time is often in excess of 3.5 hours), relatively thin markets, high charges and taxes, regulatory inhibition and lack of secondary airports.

Given such constraints, how do the region’s fledgling LCCs stay true to their business model of high efficiency? How can they drive the next step change in unit cost (CASK) reduction? Will it be driven by new aircraft technology, better supplier deals, greater operational flexibility or a combination of these?

CAPA – Centre for Aviation’s expert in region, senior analyst, Lori Ranson, attempted to answer some of these questions in a presentation highlighting LCC development in Latin America at the CAPA Latin America Aviation & LCCs Summit in Cartagena, Colombia back in Sep-2018.