Monday, July 11, 2016

Low-cost Ryanair ready to land in Argentina



Macri administration plans to lift minimum rate for domestic flights in less than a year

By changing a group of technical regulations, the national government is set to open the door for low-cost airlines to start flying in Argentina, with the arrival of two such carriers already confirmed — a move set to alter the almost 75 percent market share of state-run Aerolíneas Argentinas.
Irish airline Ryanair and Colombian giant Avianca have already confirmed they will start to operate in the country, while Pacific Ocean is currently in talks. But others could follow, as the Macri administration has vowed to accept a list of demands made by the foreign airlines to enter the market.
There’s a long list of reasons that explain the absence of low-cost companies in Argentine skies but rate regulation is the main one. Companies currently can’t charge a ticket less than a certain rate, according to a measure established in 2002. That goes against the business of low-cost companies, which charge much lower prices.
That has already started to change. The national government authorized companies in February to increase prices for domestic flights without any limits by lifting maximum tariffs. Now the goal will be to eliminate the minimum as soon as possible to open the door for more low-cost players in the market.
Attending a summit in Córdoba, Tourism Minister Gustavo Santos recently told a group of business leaders he will work “relentlessly” to eliminate the minimum rates for airline companies, seeking to have a “full competition” between them in Argentina. He said the decision to do so has already been taken by the government and could be implemented in less than a year.
“The tourism sector needs to have more economic airplane rates. Flights to foreign countries can be a lot cheaper than domestic ones. Latin America only accounts for between five and seven percent of all the flights in the world. So any scenario with more competition and flights will lead to lower rates,” Fabricio di Giambattista, president of the FAEVYT federation of tourism companies, told the Herald.
But there are also other issues for the goverment to deal with for the low-cost sector to kick in.
Airlines have to pay much higher rates to use the airports in Argentina than in the rest of Latin America, experts agreed. One private company, Aeropuertos Argentina 2000, currently controls 33 of the 55 airports in the country and registers a deficit in most of the provincial ones. To compensate it, the firm charges higher taxes in the Buenos Aires airports.
“Flying in Argentina isn’t cheap. Ezeiza international airport is the most expensive airport in the region. At the same time, infrastructure costs in the country are excessive. Airports are low-tech and face many problems,” Peter Cerda, regional head of the International Air Transport Association (IATA), said in a recent summit.
The reduced number of airports also make it difficult for low-cost companies to use alternative ones, as they do in Europe and the United States. At the same time, many airport don’t have good and cheap transportation services and don’t have the infrastructure to deal with night flights, which are usually the most used ones by low-cost airlines.
The cargo services used by the companies are also described by experts as expensive. Intercargo is the state-company that runs them and is currently seeking to lower its costs, which are still higher than the Latin American average.
Ryanair has already said it will seek to use its own company for cargo services, which could lead to a struggle with unions. The Irish company asks its hostesses to clean the airplane after the passengers arrive at their destination. While that policy is one of the reasons behind cheap fares, it could lead to arguments with union leaders.
“Argentina could use more players in its airline sector,” Constanza de la Cruz, co-founder of Avantrip.com, told the Herald. “Low-cost flights would encourage more people travelling for leisure. Argentines are used to going on weekend trips but now most only go to nearby destinations to save money in travel. Cheaper flights would encourage them to travel more.”
Two confirmed companies
Expected to arrive in 2017, Ryanair would use its Viva firm, which already operates in Mexico and Colombia, and would likely buy a local company to begin with. Salta’s Andes airline, which connects Buenos Aires with the country’s northern provinces, is being considered by Ryanair, according to the state-run news agency Télam — which reported that talks with Andes’ CEO Miguel Ziadi are already underway.
A US$50-million investment is being considered by Ryanair, although the move is still subject to negotiations with the ANAC regulatory agency over which flights it could operate. The firm’s co-founder Declan Ryan is said to be worried by the “almost-monopoly” held by Aeropuertos Argentina 2000.
Meanwhile, Avianca, the second largest airline in South America, will start flying in Argentina starting in December after buying in March MacAir, a small airline run by the president’s family. The company will invest US$100 million until 2018 and will bring 18 airplanes, using Buenos Aires and Córdoba as its hubs.
“It’s a market with opportunities, there’s room for many more airlines without the need for predatory competition. A new window opened up in Argentina,” Avianca co-founder Germán Efromovich said in a recent summit. “The government wants to increase the number of flights in the domestic market and we want to be here to take advantage of the opportunity.
More companies will mean challenges for Aerolíneas Argentinas, used to only competing with LAN Argentina for the domestic market. Nevertheless, its head Isela Constantini is not only aware of the upcoming scenario but also welcomes it.
“I hope the low-cost companies arrive in Argentina and help us to lower our costs. I’m not worried about their arrival, but we do have to keep working on improving our service. The attention we provide to our passengers will be what makes us competitive in the future,” she said last week inaugurating a training centre.
Market on the drop
The arrival of low-cost companies could be a boost for the tourism sector, which has seen negative figures so far this year.
The last official figures available show that in the first two months of the year 406,300 tourists arrived in Argentina, 8.8 percent less than the same period last year. The year started with a 10.5 percent drop in January, followed by a 6.4 percent decline in February — a trend set to continue on the coming months, experts said.
Brazil’s economic and political crisis played a key role in the fewer number of tourists visiting Argentina. The number of Brazilian tourists dropped 44.6 percent in January and 47.1 percent in February, compared to the same months last year. Fewer tourists from Chile, Uruguay have also been reported, while more continue to come from the US and Europe.
“Almost half of the tourists that arrive in Argentina are from neighbouring countries, which have weak exchange rates like the Argentine peso. That means they spend less. They find Argentina expensive,” de la Cruz said. “The tourism sector is now stagnant but the government has the objective of making it grow.”
BuenosAiresHerald

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