Equair failure highlights the challenges faced by domestic airlines; New carrier will use smaller jets

The suspension of Equair flights is a reminder of the difficulty small airlines face in the Ecuadorian domestic market. The two-year-old carrier serving Quito, Guayaquil and the Galapagos ended service Saturday, citing high operating costs and low passenger loads for its decision.

High operating costs and low demand plague start-up domestic airlines in Ecuador.

Despite Equair’s demise, EcuaCondor, a new domestic carrier that will serve Cuenca, Loja and Santa Rosa-Machala in addition to Quito and Guayaquil, has announced it will begin operations by the end of the year.

According to industry analysts, the problem with the domestic air market involves several factors. The first is low demand. According to the International Air Transport Association, Ecuadorians average 0.44 trips per capita a year, one of the lowest rates in Latin America. IATA says that Ecuador has still not fully recovered from the impact of the Covid-19 pandemic, with domestic service 13% below 2019 levels.

In addition to low local demand, Ecuador’s tourist numbers are not enough to bolster domestic customer numbers. In neighboring Peru, the percentage of tourists flying within the country is more than double that of Ecuador.

And then there are high operating costs in Ecuador. Despite President Guillermo Lasso’s elimination of the currency exit tax for airlines, costs are as much as 10% higher than in most other South American countries.

“There are several factors leading to the poor profitability of the local market,” says economist Carlos Rueda. “Airport fees and the fuel surcharge are the major ones but there are others, including geography. Ecuador is a small country so people can travel by bus or car from one end of the country to the other in a day. In Colombia and Peru, it can take as long as three days to travel overland between cities, which means more people prefer to fly.”

Rueda says the large international carriers that serve the local market, such as Avianca and Latam, have an advantage over smaller, local airlines. “They have an economy of scale that allows to them to adjust schedules and personnel to remain profitable and, of course, they concentrate on the profitable passenger markets in Quito, Guayaquil and Cuenca.”

Rueda adds that the small, local airlines that have failed in recent years, including Equair and AirCuenca, used aircraft that were too large for the routes they served. “Operational costs for 130-passenger jets are very high and if you can’t fill the seats you fail.”

EcuaCondor, which plans to begin service to Cuenca and other destinations in November, will operate 60-passenger jets.