Story ID: CKargentina03112019
LCCs Set To Catalyze Argentine Growth
By: Chris Kjelgaard
Caption: Traffic in Argentina’s domestic air travel market will triple within eight years, according to ICF aviation consultant Carlos Ozores.
Word Count: 510
Argentina’s underserved domestic market stands to triple in terms of traffic within five to eight years as low-cost carriers (LCCs) take advantage of the government’s decision to remove the low-end and high-end price caps it previously had imposed on domestic fares, according to Carlos Ozores, a principal in ICF’s aviation consulting practice.

Although the average family income in Argentina remains fairly low, many of the country’s citizens now control enough wealth to afford airfares priced below the bottom-limit caps previously placed on domestic fares, according to Ozores. The bottom-limit airfare caps created a domestic transportation market in which long-haul bus travel became ubiquitous throughout Argentina, South America’s second-largest nation in terms of area.

Now, however, with cost structures that allow them to offer fares that stimulate low-yield traffic in long-haul domestic markets, LCCs such as Flybondi (Argentina’s first recognized LCC and a carrier for which ICF has provided financial-consulting services), Norwegian Air Argentina, and—starting April 12—JetSmart Argentina (a subsidiary of Indigo Partners-backed Chilean LCC JetSmart) compete directly with the long-haul bus operators, said Ozores. Flybondi and Norwegian Air Argentina operate Boeing 737-800s, while JetSmart Argentina plans to use A320s.

Another planned Argentinean start-up, Buenos Aires International Airlines, recently received government approval to operate 178 domestic and international routes from Ezeiza International Airport, Buenos Aires’s main international gateway. The carrier, founded with the assistance of New York-based transportation investment-banking firm Seabury Group, plans to launch operations later this year with 737-800s or 737 Max 8s.

“In Argentina, ultra-low-cost carriers are here to stay. It is going to get dirty, but it is happening,” said Ozores. However, he added, the market will become viciously competitive and he views Norwegian Air Argentina as the most vulnerable of the current crop of new-entrant LCCs to potential failure, for several reasons.

First, he noted, parent company Norwegian Air Shuttle has found itself in a financially risky position and, second, the Norwegian brand, while well-known in Europe and North America, “doesn’t translate well in Argentina” because of Norwegian’s limited exposure there until now. While Norwegian Air UK operates long-haul scheduled flights from Buenos Aires to London Gatwick, “that itself is not going to lead to [Norwegian Air Argentina’s] success,” said Ozores.

Another risk involves unfavorable currency fluctuations, Ozores noted. “Nobody will make money in Argentina in the near term, because the currency is moving in the wrong direction,” he said. Fourth, traffic data for the fledgling Argentine LCCs shows average load factors hovering below 60 percent, requiring them to offer steep discounts.  

Yet another factor stacked against Norwegian Air Argentina centers on its lack of cost advantage over JetSmart Argentina, because “JetSmart is a true ultra-low-cost carrier,” according to Ozores. Finally, Norwegian—and all other Argentina-based LCCs—also face competition from full-service carriers due to the government’s determination to keep subsidizing state-owned Aerolineas Argentinas, which the country’s leaders see as a strategic national asset, according to Ozores.