Uncertainty about air travel grows as Latam is second Ecuador carrier to file for bankruptcy

Scenes like this at a Latam check-in counter are unlikely to be seen again any time soon.

Despite Ecuador’s decision to resume domestic and international air travel on June 1, there is growing concern about what that service will look like. On Monday, Latam, Ecuador’s largest commercial carrier filed for bankruptcy, less than two weeks after Avianca, the country’s other commercial airline, did the same.

Government officials are counting on the two airlines to fill the service void left by the closure of publicly-owned Tame airlines.

Although Latam and Avianca say they will continue to fly and intend to serve the Ecuador market, bankruptcy allows them extra leeway in determining schedules and which cities they fly to. It seems certain that some airports served by Tame will have no service at all.

“Under the U.S. chapter 11 bankruptcy filing, the airlines will have a laser-focus on serving the routes that are profitable,” says Mexico-city airline consultant Robert Mitchell. “The government has been talking to them about serving small airports served by Tame and we can be fairly certain now that this will not happen.”

There was additional uncertainty Monday about the rules that international travelers entering Ecuador will be required to follow. Airlines are telling the Ministry of the Interior that a requirement that incoming passengers provide proof of a Covid-19 test before flying is not feasible because of the difficulty, in some countries, of obtaining the test. Interior Minister Maria Paula Romo said she will review the rule.

In announcing the bankruptcy Monday night, Latam said that reservations, employee pay, flight vouchers as well as passenger and cargo operations will not be affected. Last week, the airline announced its second round of downsizing, furloughing 1,400 employees. Latam is South America’s largest airline.

“The U.S. Chapter 11 financial reorganization process provides a clear opportunity to work with our creditors and other stakeholders to reduce our debt, address commercial challenges that we, like others in our industry, are facing as a group,” Latam CEO Roberto Alvo said. “It is very different from the concept of bankruptcy in other countries and is not a liquidation proceeding.”

Alvo cited coronavirus-related travel restrictions as a main driver for the decision to file for bankruptcy. “We are looking ahead to a post-Covid future and are focused on transforming our group to adapt to a new and evolving way of flying, with the health and safety of our passengers and employees being paramount,” he said.

The reorganization will affect Latam affiliates in Chile, Brazil, Argentina Peru and Colombia as well as in Ecuador and the United States.