Ecuador could be the big loser in air travel as Andean nations’ air carriers struggle to return

By Daniel Martínez Garbuno

Last month, the two most important airlines in Latin America filed for a Chapter 11 bankruptcy in the U.S. Between Latam and Avianca, both transported over 104 million passengers in 2019. Additionally, both groups have branches operating in almost every country in South America. So, which country has the most to lose with the current reorganizations both carriers are making?

Government-owned Tame airlines has ended it service in Ecuador.

Colombia
One could argue that Colombia has the most to lose. After all, Avianca is based there and has a 53.8% domestic market share. LATAM Airlines Colombia has a 23% market share and is the second most important airline in the country. The third place is for the low-cost carrier Viva Air and the fourth for the State airline SATENA.

Weekly, between both carriers, operated 60 domestic routes in Colombia. As local newspaper Semana wrote, three-quarters of the domestic flights are currently on hold pending what might happen with the airlines in the US.

Both carriers are tied for the next 12 to 18 months to the conditions and restrictions that the US government might impose on them, said Semana.

Additionally, the Colombian Government has recently decided not to allow international operations until September. While Colombia has a rough road ahead, we think there are two more countries that might be more affected in the region.

Peru
In the last three years, Peru has lost three airlines, while also seeing the growth of the low-cost model. In 2018, LC Peru ceased operations, after 25 years. It had a fleet of 15 aircraft and a route map of 16 domestic destinations. In 2019, Peruvian Airlines ceased operations. The historic carrier had an 8.3% share of the local market after Latam Airlines Peru and Viva Air Peru. Then, in 2020, Avianca announced the immediate closure of its Peru branch. 

While Latam Peru is still the most significant player, the restructure of the Peruvian air market could signify opportunity. In the past few months, LATAM Peru has fired over 1,800 workers and had a 95% decrease in its operations.

Low-cost carriers such as Viva Air could have the most to gain. Since 2017, the low-cost carriers have controlled 20% of the market. In 2019, Viva Air and Sky transported over three million passengers. This country is up for grabs.

Ecuador
The Ecuador air industry has not had an easy 2020. This country also has branches from both Avianca and Latam, which already speaks trouble. But additionally, the Ecuadorian government started a liquidation process of its State airline, TAME EP. In 2018, these three airlines had 99.99% of the domestic market share, according to local journalist Nicolás Larenas.

Airline specialist, René Armas Maes, recently wrote about Ecuador’s case. “Avianca and Latam Airlines began bankruptcy procedures that include reorganizations, cost reduction measures, and route map replanning,” he said. “Additionally, these airlines operate in Ecuador but might consider this domestic market as having less appeal than other South American domestic markets. They could see Ecuador as a distraction from their reorganization processes.”

Currently, analysts are expecting the airline branches to operate at 30% of their original capacity. Again, this scenario is an opportunity for low-cost South American carriers like Sky, JetSMART, or Viva Air. 

But the question is, will they seize the opportunity in Ecuador? Or will low-cost carriers try to expand in more significant markets, such as Peru, Colombia, or even Chile, before moving into Ecuador?
____________________

Credit: Simply Flying