The Covid-19 pandemic has been financially devastating for airlines, including in Latin America, where LATAM Airlines, Avianca and Aeroméxico have all filed for bankruptcy protection this year. However, there are signs of improvement, with Aeroméxico reporting a pickup in passenger traffic and a much smaller loss in the third quarter as compared to the second. How much is air travel rebounding in Latin America, and what is the outlook for the sector next year? Which safety standards are proving to be the most effective, and how well are Latin American governments coordinating with the airlines that serve their countries in order to prevent the spread of infection? To what extent are countries in the region successfully working together in order to standardize air travel health safety protocols?
Landon Loomis, vice president for global policy and managing director at Boeing Brazil: “The global impact of the pandemic is immense, and it has hit the aviation industry in Latin America particularly hard. According to the International Air Transport Association (IATA), passenger traffic in the region was down 92.2 percent in September as compared to last year, with capacity down 87.9 percent and load factors (utilization) at just above 50 percent. There was some encouraging news: commercial operations have returned in Brazil and Mexico faster than in the United States, and Chile is picking up quickly. For countries that rely on international connections to drive traffic, however, rates remain extremely depressed. The first priority during a pandemic must be to ensure the health and safety of the flying public. A comprehensive industry effort is well underway to develop and deploy a multi-layered approach to protect passengers and crew throughout the travel journey. Airlines increased cabin cleaning between flights, adjusted seating configurations, and travelers are being required to wear face masks. On the plane, cabin air is filtered through specialized HEPA filters that remove 99.9 percent of particulates, including viruses. And the air is completely replaced every two to three minutes with outside air. Multiple data sources demonstrate that the approach works: according to IATA, more than one billion people traveled by air this year, with fewer than 50 documented cases of transmission (0.000005 percent). A recent study by the U.S. Transportation Command and United Airlines also found that the risk of contracting Covid-19 while flying is very low. In order to restore the full benefits of international connectivity, governments should pursue consistent protocols to facilitate cross-border travel. Given the anticipated economic impact of Covid on the region, there is a clear imperative for action. Forty-six million jobs in the broader economy are supported by the industry worldwide, including about eight million in Latin America. This includes flower producers in Colombia and the fishing industry in Ecuador, which all depend on airplanes to move their products around the world.”
Helane Becker, managing director and senior research analyst covering airlines, air freight and aircraft leasing at Cowen: “Brazil seems to be leading in the region, with domestic traffic recovering faster than in other countries. We are also seeing recovery in Mexico, which contributed to Aeroméxico’s quarter-over-quarter improvement in the June-to-September quarter. In addition, Volaris continues to take share in Mexico, accounting for 42 percent of the domestic market, up from 31 percent last year. We expect them to hold on to a significant amount of this growth. The outlook for 2021 is continued improvement from this year, of course, but a key to recovery is accepting testing as an alternative to quarantine. It is difficult for business traffic to return if travelers must quarantine after a short business trip. Likewise, we do not think tourists wish to quarantine upon arrival before starting their vacation. Finally, tourist attractions need to open. As a result, without a widely distributed vaccine, we think the recovery will still be long and slow. To the extent the region’s governments can agree on a bubble or testing, travel growth will likely accelerate. We are seeing airlines starting to add capacity back to the market and are hopeful this slow growth can continue. As we move into the southern summer, we are hopeful the virus spread will mitigate, leading to continued recovery in traffic until we see vaccine distribution. Finally, the visiting friends and relatives’ market will continue to gain strength as people feel comfortable traveling again.”
Rafael Echevarne, director general of Airports Council International-LAC: “Passenger traffic in Latin American and Caribbean airports is evolving at two different speeds. Through September, the region as a whole had a cumulative decline of 59 percent as compared to 2019, but there are important differences between two groups of countries: Brazil and Mexico, and the rest. Whereas March, April and May were equally dramatic for all countries, with traffic declining by more than 90 percent, there was a significant difference from June onwards. Mexico and Brazil have been recovering mainly as a result of their significant domestic traffic activity, and October closed with a decline of 53 percent in Mexico and of 60 percent in Brazil. However, the rest of the region closed October still maintaining a 90 percent decline over 2019. The future is uncertain because it depends on many unknown factors, the most important ones being the restrictions to travel imposed by governments and the availability of a vaccine. It is clear and it has been demonstrated that the imposition of quarantines kills demand. This is the reason why both airports and airlines encourage governments to opt for testing on departure. Also, as the reliability of quick Covid tests improves, we should see more demand for air travel. However, this will only materialize if governments adopt a coordinated and standardized approach, which is something that has not yet happened.”
Eliseo Llamazares, partner and head of Latin America aviation and tourism at KPMG: “During the time when airlines had their planes grounded, all aviation stakeholders (governments, airplane lessors, airports and even employees with voluntary or legal temporary dismissals) supported cash relief with the deferral of payments. But as flying resumes, so do fixed and variable costs, in a context of weak demand. The rate of burning through cash is thus much faster and dangerous for the industry. Given this, it is important to maintain stimuli (which Latin American governments have not done), as the worst of the crisis begins now. From a demand perspective, the lifting of restrictions leads to an emergency travel ‘bubble’ that makes it appear as if normalcy is back. This bubble will disappear in a few weeks, and demand will be weak and highly localized to certain routes, which will have a significant impact on air connections in Latin America. Based on Europe’s experience, where mobility from the start was done without any health controls in what officials called ‘safe corridors,’ we can’t ignore that the risk is very high and that it is necessary to implement strict testing controls at the origin and destination in order to avoid the import of cases. The implementation of a ‘health passport,’ with proof of noncontagion, is essential to limit the number of cases being imported during the reopening of borders, thus limiting the impact of a ‘second wave,’ which many countries around the world are experiencing.”
Peter Cerdá, regional vice president of the Americas at the International Air Transport Association (IATA): “Even before Covid-19 triggered aviation’s biggest-ever crisis, airlines across Latin America struggled to operate profitably. Many governments still viewed this industry as one for the well-off, which could be taxed at will, driving up operational costs. In 2019, the airlines based in the region suffered a loss of $300 million and, while the original forecast for 2020 was for a modest profit, the pandemic has changed this dramatically. We are now looking at losses of at least $4 billion. The continent went into lockdown for at least half a year, and at present we still have countries that have not fully reopened their borders, and at many airports, airlines face operating restrictions. In response to Covid-19, we came together as industry and, through bodies such as the International Civil Organization and the World Health Organization, developed aligned protocols on how to operate safely during this pandemic. Unfortunately, governments are implementing their individual, uncoordinated protocols, which are further hindering the recovery of aviation. We need this industry to regain its strength so it can support the socioeconomic recovery across Latin America and Caribbean. Given the overall transport infrastructure in the region, aviation plays an essential role in connecting people, business and goods, not only within Latin America, but also with the rest of the world. We need a concerted effort by governments and all stakeholders in the travel value chain to restore confidence, which is the basis for all of us to recover from this pandemic.”
Carlos Ozores, principal and Aviation and Americas consulting lead at ICF: “Air travel throughout Latin America is recovering at different rates depending on the country, in large part due to the different approaches that governments have taken for dealing with the pandemic. Some countries with large aviation markets, such as Brazil and Mexico, largely avoided quarantines and other restrictive health measures. In these, the domestic market has recovered to about 55 percent and 40 percent, respectively, of pre-Covid traffic levels as of September. At the other extreme is Argentina, resumed regular domestic flights just last month. International demand remains largely suppressed, although Mexico’s international market, closely linked to the United States, has recovered to 30 percent of pre-Covid levels as of September. Airline revenues, meanwhile, are lagging due to suppressed business travel and aggressive discounts airlines are using to lure passengers back. Travel restrictions, are hindering international demand. International trade associations such as IATA and ACI are advocating for common health standards, but governments are not listening, and there are no harmonized entry requirements. This is not an issue unique to Latin America. Fortunately, the region’s major carriers have successfully raised liquidity during this crisis, whether through Chapter 11 restructuring or by raising secured debt. There is also a crop of well-managed ultra-low-cost carriers throughout the region that are poised to capitalize on the faster return of leisure and ethnic travel and the restructuring and downsizing of the full-service carriers. A prime example of this is Volaris in Mexico, the country’s largest domestic airline, which as of September carried 70 percent of its pre-Covid domestic traffic and is planning to reach pre-pandemic levels by year end. The main challenges for recovery are finding and deploying a vaccine or treatment, and how effectively governments can respond to economic and social pressures after the pandemic. Latin America was already facing slowing economic growth and increases social unrest, and these pressures have not gone away. Air travel demand in 2021 will continue well below 2019 levels, so airlines and other players in the travel value chain will have to endure another very difficult year.”