TRANSPORT-LATAM: Commercial Airlines in Non-Stop Crisis

By IPS Correspondents Reprint | | Print |

Gustavo González

SANTIAGO, Jan 22 2003 (IPS) - The problems plaguing commercial aviation in Latin America, worsened by the Sep 11, 2001 attacks in the United States, are expected to plunge even deeper as a result of the looming U.S.-led war against Iraq.

The region’s airlines were hurt last year by the decline in passengers, in large part seen as fear carrying over from the terror attacks in which passenger aircraft were hijacked and crashed into the World Trade Centre in New York and the Defence Department (Pentagon) in Washington.

But other critical factors for the industry are rising operating costs – and thus more expensive tickets – resulting from tax hikes and price increases for insurance and fuel, the latter reacting to the unstable international oil market caused by tensions in the Middle East and Iraq.

The Latin American companies are not in a position to confront these challenges because they have been suffering financial difficulties since the global crisis of 1997-1999, which began in Asia and expanded worldwide and ultimately depressed investments in the industry and affected the airline privatisation and sales processes.

The economic collapse of Argentina contributed more than a little to this year’s poor performance among Latin American airlines. The repercussions of the Argentine crisis were felt across the region, but particularly among the country’s partners in Mercosur (Southern Common Market), Brazil, Paraguay and Uruguay.

But the International Air Transport Association (IATA) reports that the industry worldwide is recovering from the blow it suffered as a result of the Sep 11, 2001 terror attacks.

According to the latest IATA figures, in October 2002 the number of passengers on international flights was 25.46 higher than the same month in 2001.

Though experts point out that the 2001 figure serves as poor comparison because that October marked the peak of the "fear of flying" in the wake of the attacks in the United States.

From January to October 2002, the volume of international air passengers was 2.5 percent less than the total for the same 10- month period in 2001, according to IATA data, which show declines of 7.6 percent for Europe and 3.2 percent for North America.

In South America, however, there was growth in both periods of 2.5 percent, and the Asia-Pacific region also recorded an increase of 2.9 percent, largely attributed to the expansion of commercial aviation in China.

The Latin America-Caribbean region is home to 35 of the 280 member companies of the IATA, which represent 95 percent of all international air traffic.

IATA’s optimism was called into question on Dec 10 when United Airlines, the second airline in the United States, declared bankruptcy, struggling under a debt of more than a billion dollars.

The United debacle is a symptom of the air transportation market in the United States, which has repercussions in Latin America because most of the international airlines base their operations on the demand for flights to Miami, New York and Los Angeles.

In late October, the Mexican governmental accounting office Cintra, which manages the two state-run airlines, Aero México and Mexicana de Aviación, announced that it was postponing indefinitely the privatisation processes for both companies until "a time when conditions are more favourable."

Airline industry experts estimate the losses of the two companies for 2002 at 1.6 billion dollars. Among other factors, the financial picture is grim because of the 300-percent hike in insurance fees since September 2001.

Fourteen airlines operate in Mexico, but only three fly internationally, including the two state-owned firms, which at the time of the terror attacks had 30,000 employees. At least 6,000 airline workers have been laid off since.

The outlook is not any better in Brazil, where Varig, the dominant force in international flights, has run up a debt of around 770 million dollars, which originated in the 1980s and rose sharply since 1999 as a result of the depreciation of the national currency, the real.

Manuel Guedes, president of Varig for the owner, the Rubem Berta Foundation, ruled out selling the company or engaging in a capitalisation process with foreign investors, arguing that the crisis afflicting passenger air transportation is a global, not a local problem.

The 37 airlines of Argentina saw an unprecedented 50-percent drop in operations in the first seven months of 2002, meaning that more than a million passengers opted not to use the companies’ services to fly within the country or abroad.

The combined losses of the Argentine companies reached 500 million dollars for the January-July period, and 350 million dollars of that total corresponded to international flights, according to official figures from the civil aviation board.

Aerolíneas Argentinas, the country’s flagship airline, has been able to weather the storm thanks largely to new ownership, the Spanish Mar Sans group. The company was able to renegotiate 60 percent of its debt of some 800 million dollars.

And amidst the airline crisis, Aerolíneas Argentina has benefited from the fact that six foreign airlines (Air Canada, Delta, KLM, Mexicana de Aviación, Qantas and South African) have closed up shop in Argentina due to the country’s economic troubles.

"Under current conditions, no more than three Latin American airlines are going to survive, and one of them will be Lan-Chile," stated Chilean businessman and former senator Sebastián Piñera last August. Piñera owns the formerly state-run airline that was privatised by the Augusto Pinochet dictatorship (1973-1990).

From January to July of this year, the number of passengers on international flights originating in Chile was 10.8 percent fewer than the same period in 2001. But a subsequent recovery reduced the passenger deficit to 4.7 percent by October.

The new year does not bode for improvements for the Latin American airline industry, as operating costs will likely rise if the United States takes military action against Iraq, because this would push up international oil prices.

An escalation of the international offensive against terrorism, as promoted by U.S. President George W. Bush, will probably also keep insurance prices up, as well as maintaining higher airport taxes in order to cover the costs of stricter security measures.

The Latin American airlines that have been privatised are in no position to seek state aid, as their U.S. counterparts did in September, demanding that the U.S. Congress create a "war subsidy" if military action is launched against Iraq.