Page 42 - STRATEGY Magazine (G)

LATAM’s airlines experienced profitabil- ity for three consecu- tive years during the recession: US $500 million in 2009, US $1 billion in 2010, and US $300 million in 2011
Two-thirds of the intercontinental air traffic in Latin America funnels through only 10 airports
São Paulo alone handles 25 percent of Brazil’s air traffic
Panama is project- ed to average 5.6 per- cent growth over the next few years
OECD predicts that Mexico and Brazil will see GDP growth rise to 3.5 percent in 2016 from 2.9 percent in 2015
US $500 million in 2009, US $1 bil-
lion in 2010, and US $300 million in 2011. IATA attributes these results to economic growth, market liberalization, and industry consolidation.
As two-thirds of the intercontinental air traffic in Latin America funnels through only 10 airports, there is a general push for increased investment in airport infrastructure. São Paulo alone handles 25 percent of Brazil’s air traffic. With the Olympics just around the corner, tourism will continue to be a major catalyst of traffic growth, with an average annual increase of 3.5 percent per year.
According to IHS Global Insight, Brazil is heading towards becoming
the fifth-largest economy in the world by 2020; overall growth in the region should improve steadily and by 2017 outpace world GDP growth. Proving that the region as a whole is shaking off the recession, Panama is projected to average 5.6 percent growth over the next few years, and the OECD predicts that Mexico, along with Brazil one of the two largest economies in the region, will see GDP growth rise to 3.5 percent in 2016 from 2.9 percent in 2015.
Aviation, with its ability to facilitate trade, travel, and tourism, is a vital component of this growth. The consol- idation of major companies within the Latin American aviation industry—the mergers of LAN Airlines with TAM Airlines, Avianca with TACA Airlines, and others—has resulted in larger, more stable, and more competitive airlines. With the addition of low-cost carriers bringing expanded services and af- fordable air travel to more people and previously underserved communities, the sky is the limit for aviation in Latin America.
OPEN SKIES AND CLEAR FLYING
The U.S.-Brazil Open Skies aviation
regime will significantly liberalize U.S.-Brazil air service for airlines of both countries, pending approval by the Brazilian legislature. “This agreement means the travelers, shippers, air-
lines, and economies of both the United States and Brazil will benefit from com- petitive pricing and more convenient service,” said former U.S. Transporta- tion Secretary Ray LaHood.
Open Skies allows airlines to select routes, destinations, and prices for passenger, cargo, and charter services based on consumer demand and market conditions, including additional services to formerly restricted (and highly con- gested) São Paulo and Rio de Janeiro airports. This will make Brazil the 101st U.S. Open Skies partner.
Strong growth-oriented policies in many Latin American countries are predicted to drive economic growth and passenger demand for air travel. The recently concluded 2014 FIFA World Cup and the upcoming 2016 Summer Olympic Games in Brazil are stimu- lating new investments in aviation infrastructure as well as creating increased tourist activity. Brazil now plans to build and improve 270 region- al airports, and Bombardier forecasts delivery demand for 1,100 new 20- to 149-seat aircraft in Latin America, with the region accounting for 8.4 percent of global delivery demand over the next 20 years.
Latin America has faced some stormy weather during the last couple of years after the economies of some major markets suffered from global turbu- lence, but recent IATA forecasts predict that some of those clouds are parting to begin letting the sun through. Col- lectively, the airlines operating in the region are expected to produce around US $1 billion in profits for 2014, with a profit margin of 2.6 percent, a welcome improvement from the US $700 million profit posted in 2014.
Latin America remains a vibrant avia- tion scene. As the region shakes off the lingering effects of the global recession and the Summer Olympics prepare to
shine a bright light on the region in 2016, the demand for both leisure and business travel is once more projecting open skies and clear flying for Latin America.
Even though 2014 was considered an off year, the region still recorded a healthy 5.8% gain in international traffic, according to the International Air Transport Association (IATA).
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