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Crisis? What Crisis?

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Despite the global crisis, Latin America continues to do well. And its fundamentals are stronger than ever.

 

BY ROBERT C. BOOTH

The global financial crisis – while having an impact obviously – is not affecting Latin America with anywhere near the impact as it is in the United States, Europe and elsewhere. The headlines alone support our optimistic outlook about the region’s situation.


THE AIRLINE BUSINESS

Beginning with the airline business (I hate the word industry), the “model airlines” (our list of the four publicly traded airlines, Copa, LAN, TAM and GOL) – with the exception of GOL’s acquisition of Varig – are all reporting net profits and double digit margins (in some cases) in the first half of 2008. LAN…reported net income of $122 million with a net margin of 11.3 percent - and a nine month total net income of $260 million for an increase of 25 percent over the same period last year. And some U.S. carriers are also reporting profits in their Latin American operations, with the highest yield (in September of 16.1 cents per RPM) anywhere. And the airlines – both in the region and elsewhere – are all adding capacity within and to and from Latin America and the Caribbean. With LCCs, like JetBlue, Spirit, AirTran, Volaris, VivaAerobus – in Mexico, all adding capacity as they find the region provides them with the best opportunities for expansion. While “legacy” carriers from the United States, Europe and the region adding service all over the place, in many cases opening new O&D destinations in the United States. (…)


And airlines in the region are taking delivery of NG aircraft as they expand their capacity and grow their fleets which are among the youngest anywhere. And startups are also in the works, with Spirit looking at a joint venture in Colombia, and David Neeleman’s Azur to start domestic service in Brazil in December. The glass is definitely half full.

THE MARKET

Airline traffic growth in Latin America is the fastest in the world – look at the recent AEA (Association of European Airlines) report for August with the South Atlantic the number one growth market with 13 percent growth and year over year up 12.1 percent. And ALTA (Latin American Air Transport Association) reported its (32) member airlines grew 9.6 percent in the seven months. With considerable additional growth within the region and domestically. It’s the economy, stupid.

 

TOURISM


And tourism is growing in double digit numbers throughout the region, in spite of the global crisis. Some specific examples: Panama reports September tourist visitors up 13.1 percent; Costa Rica reports tourist visitors up 10 percent in the first nine months of the year; Central America reports 11 percent growth during the fist six months of the year, for a total of 4.1 million visitors; Brazil’s Central Bank reports that foreign tourists spent $3.8 billion for an increase of 18.42 percent in the first seven months of the year; Mexico reports tourism receipts reached a record $8.4 billion in the first seven months for an increase of 6.3 percent
with 14 million visitors; Peru reports international arrivals were up 17.5 percent to 2.9 million passengers during the first eight months of the year. And all the countries are investing in infrastructure and marketing, with the Dominican Republic government and private sector to invest $9 billion in tourism. With Argentina, Brazil, Colombia, Peru and Chile reporting significant investment in tourism reaching several billion (with a “b”) dollars this year. In other tourism news, hotels are building and expanding their presence in the region. Hilton plans to open 150 new hotels in Latin America during the next five years. Tourism is the driver.

 

THE ECONOMY

It’s obviously the key to the whole situation. But a number of reports and articles in leading business publications all point to the fact that the region is better prepared than it has been in history to handle the crisis. It is far less dependant on the U.S. economy and is expanding domestically and within the region and with new markets such as China and elsewhere. The Inter-American Development Bank (IDB) and the World Bank are providing billions in financing to help countries that need help. Major infrastructure projects, like the expansion of the Panama Canal, are all on track and experts don’t see any negative impact from the world crisis. Panama’s GDP grew 11.5 percent in 2007 and is forecast to grow 8.3 percent this year. Peru’s economy is expected to grow by 9.2 percent this year according to the IMF. Brazilian President Luiz Inacio Lula da Silva and the ministers of finance and economy along with members of the Social Economic Development Council have announced that they will provide $5 billion for small and medium sized businesses. The funds will be made available through the National Economic and Social Development Office and are geared to help small and medium sized business that need financial assistance to maintain growth of the economy since these are the source of the largest employment and generate financial strength in the country.


Latin American Central Banks are all optimistic about the future of the region and repeat the often stated opinion, according to a statement from the Central Bank Presidents meeting in Santiago in October: “We’re in better shape to face financial turbulence thanks to economic fundamentals.” These guys know what they are talking about.


I could go on and on. … I won’t belabor the fact that I’m a true optimist, but in this case I honestly believe I am supported by facts that speak for themselves. And I hope those of you who are interested in the future of Latin America and the Caribbean will agree with me.

Robert C Booth is Chairman of AvGroup and author of  Airline Pasionado – Before, Braniff and After. This column is based on an excerpt of a commentary originally published in AvNews. Republished with permission.

 

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