Type to search

Latin America’s Model Airlines

Despite the global downturn, Latin America's model airlines are making money.


While six out of seven U.S. legacy airlines reported significant losses in the first quarter and President Bisignani, of IATA, forecasts ‘gloom and doom’ for the majority of its 240 member airlines in 2009, there is a bright spot in Latin America.

First of all, let me explain our definition of “Model Airlines.” To begin with they are the following: Copa Holding; LAN Network’ TAM in Brazil and GOL/VRG, also in Brazil. Our definition is based on a number of factors; most importantly they are the only airlines in the region which have their shares listed on the New York Stock Exchange – which is a major requirement for the definition. They also have a number of other common factors which are important: a) they are largely managed by their owners; b) have a new generation fleet (one of the youngest in the region); c) longevity management:

CEOs who have been with the airline for a number of years – i.e. Copa’s CEO Pedro Heilbron and LAN’s Enrique Cueto are the two longest lasting in the region, if not the world, with Constantino Junior leading GOL since 2001. While David Barioni Neto only joined Brazil’s largest airline, TAM, in 2007 he also has a long career in aviation as a pilot and executive. And, most importantly they have a history of being profitable, as illustrated below in the first quarter of 2009 results. (See chart at bottom of page)

The four airlines, Copa, LAN, TAM and GOL/Vrg, generated a combined total of $187 million net income in the first quarter and have been profitable for the last several years. While GOL was profitable as a stand alone before it acquired bankrupt Varig, which had a negative impact on the Brazilian LCC’s bottom line in 2008, it has joined the club of profitable airlines in the first quarter.


While Copa Holdings is the smallest of the four in terms of total revenue and fleet, it leads the pack in terms of profitability. With one of the highest net operating margins in the world at 22.3%. Pedro Heilbron has done a terrific job of developing the “Hub of the Americas” in Panama which is the basis for its success. The airline also signed the first major US carrier alliance, with Continental ten years ago, which included its participation in the equity. It is leaving Sky Team but will have important access to a number of FTP providers through its relationship with Continental and other carriers.

It also acquired Aero Republica, the second airline in Colombia which has helped to add connecting service in Panama and expand its presence in the region. Finally it has one of the youngest fleets in the region, a combination of NG Boeing 737s and Embraer 190s, mainly operated by Aero Republica. Definitely one to watch.


LAN has been a leader in the region, expanding its presence in Chile, Argentina, Peru and Ecuador, and most recently establishing an all cargo presence through subsidiary cargo airlines in Colombia and Brazil. It recently began domestic service in Ecuador which has been a success in Argentina, Chile and Peru, with significant domestic and regional growth. Enrique Cueto who has led the airline since it was acquired by the Cueto family, has recently announced he is talking to President Lula in Brazil about establishing its presence as a passenger airline in that country. Enrique has shown that cargo – which represents 30% of its revenues – is a major contributor to the airline’s success, in spite of the recent drop in cargo demand.

It has continued to receive A320-family aircraft (three A319 in the first quarter) and plans to add the first two B777 freighters in the second quarter. And on April 21 Fitch Ratings reaffirmed the airline’s foreign currency rating at ‘BBB’, with a rating outlook of “stable”, stating “the company’s business model should allow it to weather the very challenging outlook environment of 2009 and 2010”. LAN remains one of the few investment grade rated airlines worldwide. Definitely another leader in the region.


TAM is the largest airline in Brazil, with a domestic market share of 49.5% and international share of 85.5% in 2008. The increase in the international market is due to the increase of four B777s, four A330s and three B767s – allowing for long haul daily flights to Miami and four-time weekly to New York, as well as daily flights to Orlando from Sao Paulo. In South America the airline launched daily flights between Brasilia and Buenos Aires, and to Bariloche and Lima from Sao Paulo. It also increased capacity by operating the B777s to Santiago and substituting all of its F100s for A320 aircraft. In October of 2008 TAM announced its entry in the Star Alliance with agreements with its member airlines. The agreement is in addition to existing frequent flyer programs with LAN Pass, TAP, Lufthansa, Swiss and United Airlines.

It also operates a subsidiary, TAM Viagens, which functions as a tour operator offering all inclusive tour packages, air fares, and other products. It is one of the largest tour operators in Brazil with 68 retail stores, dealing with five thousand agencies in the country and offering products to more than 600 destinations. It also operates the TAM Cargo unit as its freight business which grew the airline’s cargo revenue 30% in 2008 representing 9% of its gross revenues; it doesn’t operate any freighter aircraft, but generates substantial cargo revenue in the bellies of its passenger aircraft. David Barioni Neto was appointed CEO of the airline in September 2007.after leaving GOL. He replaced Marco Antonio Bologna who remains as an advisor to the airline. David has 30 years in the industry having started out as a pilot, and joining VASP in 1970; where he was later appointed General Manager. In 2001 he joined GOL where he was deeply involved. Early in May David told Reuters “In 2009 our financial result is going to be positive. We are well positioned and our balance sheet is not under stress”. He added that he was confident that Brazil’s economy is already on the rebound and that passenger traffic in 2009 would outpace expectations. “The worst is over” he said.


Brazil’s leading LCC has been a major success story in Latin America. The airline was formed in 2001 by the Constantino de Oliveira family and has become the second largest carrier in Brazil, serving 49 cities domestically and the top 10 most popular destinations in Latin America. In April 2007 it acquired bankrupt Varig, one of the oldest brands in the hemisphere, which proved to be a difficult situation and created several months of losses. However, by 2008, GOL had merged the two airlines while maintaining the brands and eventually pulling out of Varig’s long haul routes to the US and Europe. Which led to the return of B737-300s and the grounding of seven non-operating B767-300s. It has already negotiated the replacement of one B767 for a B737-800NG with the lessor and is working on returning and replacing the rest of the 767s. In the 1Q 2009 it took delivery of three B737-700 NGs and three B737-800NGs. By the end of 2009 it will have a common fleet of NG B737s reducing the average age of the fleet significantly.

In April 2009 its cargo subsidiary, GOLLOG, launched GOLLOG Express, a new product handling growing demand in the express cargo market, with door-to-door deliveries. On April 3, 2009, GOL/VRG signed a commercial cooperation agreement with Air France/KLM with frequent flyer benefits on all the partners. And by mid 2009 the agreement calls for code sharing with Air France placing its code on GOL/VRG flights from Sao Paulo and Rio de Janeiro to 13 major Brazilian cities. A similar agreement is being prepared between KLM and GOL/VRG. The agreements will represent very attractive options for passengers to, from and within South America and Europe. Constantino de Oliveira Jr., who is not only a shareholder with his family, has been the CEO of the airline since 2004 and is recognized as one of the leading airline executives in Latin America, if not the world.


While the four “Model Airlines” are the subject, I must add that there are other Latin American airlines, which, while not offering their shares on the NYSE, are also profitable and/or growing significantly. These include Avianca, Aeromexico, TACA and Mexicana.

Latin America is definitely “where the action is.”

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

In millions of US dollars.

CompanyNet Income%Revenue%

Source: AvNews

To read this post, you must purchase a Latin Trade Business Intelligence Subscription.
Scroll to top of page
Begin Zoho Tracking Code for Analytics