Analysis: Growth Potential In Latin America Is Being Thwarted

One statistic exemplifies the tantalizing potential of air travel in Latin America: The average Spaniard takes over 10 times more airline trips annually than the average Brazilian.

In both the US and Canada, the per capita annual airline trip average is 2.6, while Spain stands at 4.56, according to IATA. In Latin America, the annual average is just 0.65, with Brazil at 0.45. Among Latin American countries, only Chile surpasses 1 airline trip per capita annually at 1.21. Mexico stands at 0.72.

Given that Brazil has a population of 216 million, the ceiling of that market is seemingly sky high, especially since road transport is far from efficient across much of the country. Brazil, Latin America’s largest air transport market, reported a total of 112.6 million passengers flying within or to and from the country in 2023, up 15.3% year-over-year. Silvio Costa Filho, Brazil’s minister of ports and airports, has said the country aims to increase annual passengers to 140 million by 2027.

Even partially approaching the US/Canada average of 2.6 trips per year would lead to substantial growth in raw passenger numbers for Brazil and Latin America more broadly, as new passengers are welcomed and more people become frequent air travelers.

“The opportunity is significant,” IATA regional director external affairs and sustainability for Latin America Oracio Marquez said at Aviation Week Network’s GAD Americas conference in Miami. “What’s keeping citizens from flying and how can we realize the full potential aviation can bring to the Latin America region?”

He added that the region’s airlines are “struggling to achieve profitability” and have not collectively earned a per-passenger profit since 2017. IATA’s projected 2024 per-passenger loss in Latin America is $1.10, a sharp contrast to the expected $13.50 per-passenger profit in the US and Canada this year. Even in 2017, the recent high-water mark, Latin American airlines earned just $1.60 per passenger.

Among the challenges identified by Marquez are “fluctuating fuel prices” and “currency volatility.” But the most persistent complaint from the region’s airlines is that Latin America presents a challenging, inconsistent regulatory environment with high levels of taxation.

The average taxes, fees and charges on an international flight in Latin America is 44%, much steeper than the global average of 27%, according to IATA.

Those taxes are in addition to other complications, including differing regulations from one Latin American country to the next, governments’ slowness in developing aviation infrastructure, and sometimes dramatic swings in aviation policy when there is a change in governments.

“In general, I think in all of our countries we need to guarantee stability so we really can know with certainty that the rule of law is respected and that you don’t have to enter into a long litigation to decide a matter,” Airports Council International–Latin America and Caribbean president Monika Infante told ATW on the sidelines of GAD Americas.

IATA regional VP Americas Peter Cerda noted during the IATA AGM in Dubai there had been a surge of lawsuits against airlines in Brazil, costing the industry a collective $200 million per year. He said this pushes up airfares, decreases connectivity and stifles competition by discouraging new carriers from entering the market.

Cerda said Azul, GOL and LATAM Airlines Brasil, the three largest airlines in Brazil, average one lawsuit for every 227 passengers, placing Brazil as the world leader in airline claims. “It almost equates to around one lawsuit for every flight,” Cerda said. In contrast, in the US there is just one lawsuit for every 1.2 million passengers.

ATTRACTING INVESTMENT

Regulatory stability is especially important as airport privatization—in which private enterprises, often consortiums, develop and manage airports via long-term concessions contracts with governments—becomes more common in Latin America, Infante said. She added that those private investors want to see a predictable regulatory environment.

Governments need to create “the environment for investment” in airports, she explained, citing “the importance of liberalization of traffic. We want to grow traffic in Latin America and have as well-developed an airline industry as they have in Europe. The situation underscores the need for improved infrastructure and policy reforms to ensure the long-term viability of the region’s aviation sector.”

She also pointed to the need to develop green infrastructure at Latin America’s airports, with a focus on “new technologies and infrastructure that you will need to get to decarbonization. You have to be able to provide the proper platforms for these new technologies, whether it be SAF [sustainable aviation fuel] or hydrogen or electric.”

Marquez said Latin American airlines seek “equitable taxation policy recognizing the aviation industry is vital to business activity. It’s often overlooked that taxes and fees can constitute a cost burden not shared by other modes of transport like buses, which often enjoy tax exemptions and subsidies.”

The Colombian government’s 2023 decision to reinstate a 19% value added tax (VAT) on flight tickets after reducing it to 5% during the pandemic demonstrates the effect of higher taxes on traffic growth, Marquez said. “This has led to taxes and fees now comprising over half of the price of an international flight ticket” in Colombia, Marquez said. “This increased VAT, coupled with inflation, high fuel prices and the devaluation of the peso, resulted in Colombia missing out on up to 7 million additional passengers in 2023.”

For Latin America’s airlines, missing that traffic because of external factors, including government policies, has been a long-standing frustration that shows few signs of easing in the near future.