Latin America Air Transport Growth and Low-Cost Carrier Strategy

Analysis of Key Economic Factors in Aviation

The Value of Optimized Air Connections

In order to study the importance of investing in optimized connections to major markets, adding a new service in each country has been discussed. We studied the incorporation of the route from Santiago de Chile to Auckland and Sydney in 2006, when it was introduced. We verified that a good connection to the country resulted in short-term, large increases in passenger traffic generation and associated economic benefits.

Maintaining Efficient Airport Taxes and Costs

We also studied the importance of maintaining laws and airport taxes in line with efficient costs. When estimating the impact of a hypothetical 50% increase in the average output level rights per passenger, it is estimated that this would increase the average return rate, reducing the number of passengers in both directions. This would generate significant economic costs:

• Higher travel costs for passengers.
• A higher cost to the economy (a decline in GDP).
• Loss of jobs and a decline in wage income.
• Lower income tax revenues.

We stress the importance of maintaining cost efficiency and appropriate regulation.

Analysis of the Commercial Aviation Market

Although the global aviation industry is experiencing a difficult time, the study indicates that air travel within Latin America will grow at a rate of 6.5% annually during this period, well above the world average of 4.9%. According to the IATA, there are three steps for governments in Latin America (refer to slide).

Implementing the Low-Cost Carrier Model (LCC)

It is important to implement the Low-Cost Carrier (LCC) model, as has occurred in other regions and countries (USA, Europe, and Asia). This model promotes strong market development and facilitates the exponential growth of air transport. (Here are the main low-cost airlines in the U.S. and Europe.)

So far, Latin America has had limited development, except for isolated cases. However, in cases where the system was introduced (Brazil and Mexico), the response was immediate, increasing air traffic and market potential. Examples of working LCC companies include:

• Brazil: GOL and BLUE.
• Mexico: INTERJET and Click Mexicana.

The predictor for the Low-Cost Model in Latin America anticipates a strong impact on the regional air transportation system, likely further increasing the estimated growth forecasts for the region.