Argentina's liberalisation efforts in aviation coincide with sector growth



 

New incentives for private carriers, improved infrastructure and expanded travel options are driving growth in Argentina’s aviation sector, with increased competition coinciding with higher passenger numbers. In early April 2018 Guillermo Dietrich, the minister of transport, announced a series of measures to encourage international carriers to enter the aviation market.

Addressing a seminar hosted by the International Air Transport Association (IATA) in Santiago, Chile, Dietrich said that as of July 2018 the fees levied by local ground-handling services firm Intercargo on international carriers would be cut by 3%, while air-navigation fees charged by the Argentine Air Navigation Company would be trimmed by 2%. The reductions build on earlier cuts in service fees for international carriers introduced in 2016, totalling 10%, and are aimed at incentivising foreign airlines to serve Argentinian destinations, improve connectivity and boost competition.

“The global air transport sector experienced a remarkable increase in activity since 2008. However, Argentina remained stagnant with little investment and no new players in the local market,” Dietrich told OBG. “Today, we are proactively addressing the need for better infrastructure, greater airline competition and more lenient tariff regulations. In this sense, we have been able to reduce national tariffs, in real terms, by up to 25%, reaching comparable values for the region. The impact of these efforts on the economy, and particularly on specific sectors such as tourism, is inestimable.”

Infrastructure Upgrades

Officials have also outlined plans to expand and upgrade aviation infrastructure. Speaking at the IATA conference, Dietrich said 30 airports across the country had either been upgraded or were in the process of expansion to handle civilian traffic. These include the conversion of former military airbase at El Palomar, located just outside of Buenos Aires, into a gateway for commercial flights. Local low-cost carrier (LCC) Flybondi was the first airline to operate out of the airport, which opened in January 2018. By early April 2018 the budget carrier was flying to seven domestic destinations.

While welcoming the improved access, Julian Cook, the carrier’s CEO, told OBG further investment in aviation infrastructure is crucial to the sector’s development. “Argentina definitely needs to renew or construct airport terminals and navigation aids,” he said. “There are good steps in this direction, but more needs to be done to the low level of investment seen over the past decade. We have seen a strong commitment, both from the Ministry of Transport and the regulating body with the new administration, and hope further actions will be taken to liberalise the sector and boost investment.”

Meanwhile, on the global front, a subsidiary of LCC Norwegian Air launched services between London’s Gatwick Airport and Buenos Aires in February 2018, while Edelweiss Air, a subsidiary of Switzerland’s national carrier, has announced plans to establish a link between Zurich and Buenos Aires from November 2018.

Passenger Growth

The arrival of new players, additional routes and lost-cost alternatives come amid a significant rise in passenger traffic. In 2017, 38.8m people used air services in Argentina, a 10.8% increase on 2016, according to Ministry of Transport data. Of this, those travelling on domestic and international routes rose by 15.5% and 12.8%, respectively, highlighting the opportunities available for both local and foreign companies in the sector.

National Carrier

The increased competition and liberalisation of the aviation industry has also coincided with the improved efficiency of national carrier Aerolíneas Argentinas, which has scaled back its dependence on state subsidies. From 2009 to 2015 the carrier received an annual average of $678m in funds to meet operating expenses; however, efforts to streamline operations have seen subsidies fall to $300m in 2016 and $170m in 2017. Aerolíneas expects $90m in funding for 2018, and aims to break even or return a profit by 2019, one year ahead of the government’s 2020 target.

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The Report: Argentina 2018

Transport & Infrastructure chapter from The Report: Argentina 2018

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