Airlines in Chile, facing worse scenario than 2020, reduce operations to a minimum

RIO DE JANEIRO, BRAZIL – Airlines in Chile reduced all their operations to the minimum as of Monday, April 5, due to the entry into force of the 30-day border closure measure announced by the government to contain the second wave of Covid-19, which this time includes a ban on Chileans and permanent residents from leaving the country.

The most restrictive measure to date for airlines operating in the country comes at a time when airlines have been reducing routes and adjusting frequencies in an attempt to recover demand, as reported by AméricaEconomía in its report “Sobrevolando la crisis: ¿Quién gana y quién pierde en el reacomodamiento del mercado aéreo de A. Latina?”

Chile was registering a slow recovery in demand and in January alone had a cut in air traffic of more than 70% compared to the same period in 2019. The new restrictions are a hard blow to airlines, which have warned through the Chilean Airline Association (Achila) that this type of measures generates a “huge” damage to the industry “as they are much harsher conditions than those of 2020”.

Latam Airlines, the largest airline group in Latin America, advised through a statement that it will suspend scheduled international flights to and from Chile as from April 5, although it will maintain connectivity with a reduced operation for the duration of the restriction.

The same measures were communicated by the low-cost airlines JetSmart and SKY. The flights of both airlines will be rescheduled only to repatriate passengers to their places of residence, leaving their operations at a minimum. In the case of SKY, which reduced frequencies to its destinations in Brazil, Argentina and the Caribbean in advance, it will only maintain some flights to Peru.

This restriction will generate in airlines a significant slowdown in the supply of seats and revenues in important markets such as Santiago and Lima -the largest regional volume with this country-, as well as the Santiago-Bogota and Santiago-Miami routes, according to René Armas Maes, commercial vice-president and partner of MIDAS Aviation, a British consulting firm specialized in aviation.

The expert sees a “slower and more painful” process of demand recovery in an environment of precarious liquidity and low fares.”

Aviation analyst Ricardo Delpiano, director of the specialized website Aero-Naves, warns of the same concern. He considers that the measures announced by the Chilean government “are the most serious” that have been taken and “represent a kind of ‘forced landing’ for the aviation industry.” Delpiano forecasts that this decision will generate a setback to April 2020 air traffic levels of around 5.0%.

Outlook worsens

At the end of 2020, LATAM, which last year initiated a restructuring under Chapter 11 of the U.S. Bankruptcy Law, had been showing the strongest recovery in seat supply among the region’s airlines; however, its outlook has changed. Since February of this year, the Chilean group has been on a downward trend, which is also reflected in the data for the first weeks of March.

Meanwhile, SKY, which has not been able to overcome the financial difficulties generated by the pandemic crisis, is the airline in the region with the lowest supply recovery, according to data for March from OAG, a global provider of digital aviation information. The company had anticipated for April the temporary cessation of its Lima-Cancun and Bogota-Santiago routes.

Now the outlook looks more complicated. Armas Maes explains that in the case of SKY and JetSmart, the possibilities of reducing risk and distributing their revenues are very few, unlike the options LATAM has to move its pieces. “In the near future, Mexico and Colombia will be the fastest growing markets, and neither SKY nor JetSmart are positioned there,” he notes.

And although JetSmart plans to expand in Colombia, it will probably first have to reorganize its operations in Chile and Argentina, a process that Armas Maes believes could take between 12 and 18 months.

For the time being, the measure announced by the Chilean Government will be for 30 days, a fact that the analyst Delpiano values as the “only positive point”; nevertheless, he asks whether the growing pressure from the Medical Association and political sectors could be decisive when it comes to lifting or maintaining the restriction.

If the measure were to be extended beyond 30 days, the prospects for the industry would worsen in one of the countries in the world with the most vaccinated population against Covid-19. This is already seen as a bad omen, since vaccination has not prevented the explosion of infections in recent weeks, and Chile’s neighbors in the region are well below its vaccination rate.

“The slowness of the vaccination processes makes it difficult for Chile to open a bubble corridor to connect with other countries in the region, although it could do so with markets such as the United States and the United Kingdom,” says the commercial vice president and partner of MIDAS Aviation. If this were to happen, only LATAM would benefit.

While airlines in Chile are once again leaving most of their fleet on the ground, the country’s airline industry is urgently calling on the government to design an effective and coordinated reactivation plan for domestic and international flights, including incentives to fly and possible cost relief, to mitigate the consequences left by the impact of the pandemic.

Source: America Economia

This article was drafted with automated assistance and reviewed before publication. How we use AI · Report an error