Airlines are banking on continued growth as they up flights between Latin America, Europe and the Middle East
BY MARK CHESNUT
As airlines on both sides of the Atlantic bulk up with a slew of new amenities, flights and partnerships, competition is heating up to grab passengers crossing the ocean for business and pleasure.
Airlines in Europe, as well as one particular carrier in the Middle East, see opportunity in Latin America’s fast-growing economies and increasingly mobile populations.
“We are seeing a constant growth in all Latin American economies in the last few years,” says Marta Sanchez Oquillas, head of sales for Latin America at Iberia. “More foreign investment, trade and tourism are behind this trend. This is boosting the size of the middle classes and their purchasing power, and as a consequence, the demand for travel, which is somehow compensating the weak demand in Europe, especially in Spain.”
Iberia, which merged with British Airways in 2011, claims to control a 21 percent share of the market between Europe and Latin America, according to Sanchez. “Latin America is the most important part of our business, and this importance is progressively growing,” she added. “Our objective is to consolidate our leadership in this region and grow further. That is why we are investing a lot of money in products and services related to long-haul routes. Most of the $200 million investment we have done in the last three years has been dedicated to long-haul products.”
AIR FRANCE KLM
Air France KLM also has high hopes for the growth potential of its Latin America service. Routes headed to Latin America produce up to 1.5 billion euro (US$2 billion) annually, according to the Paris-based company, with revenue expected to increase 15 percent this year.
In 2011, Air France and KLM launched service to four new destinations — Lima, Buenos Aires, Rio de Janeiro and Cancun — and increased capacity to other cities in the region. Combined, the two carriers now operate 115 flights per week to 11 destinations that range from vacation hotspots (Air France operates seasonal thrice-weekly flights to Cancun) as well as business hubs (both Air France and KLM fly at least once a day to Mexico City and Sao Paulo).
Air France KLM is among the companies predicting especially strong growth for Brazil, which will soon host two major traffic-generating events: the 2014 FIFA World Cup and the 2016 Summer Olympics. Brazil already accounts for 50 percent of Air France’s total Latin America operations, with 28 weekly frequencies from Paris alone.
Iberia, meanwhile, reports that Argentina, Brazil and Chile are the leading sources of growth in the region, followed by Colombia and Venezuela. “Apart from these big economies, we also see a growing importance of Panamá, which is becoming a hub for the whole Central American area, where we hold a very significant presence,” Sanchez says.
And then there is Emirates, which introduced new daily flights this year between Dubai and Buenos Aires via Rio de Janeiro, adding to its existing service to Sao Paulo. While European and Latin American carriers focus largely on the growth potential in linking their own two regions, Emirates claims to find success in offering an alternative for those heading to other parts of the globe. This was the original reason the carrier started flying to Sao Paulo, according to Nigel Page, the company’s senior vice president of the Americas. Before the arrival of Emirates in South America, “any traffic going to the Middle East would have to go via Europe,” he explains. “We saw a tremendous opportunity to start service between Brazil and the Middle East, where we saw terrific traffic flows and trade.”
According to Page, approximately 30 to 40 percent of passengers from Latin America fly to Dubai as their final destination; the rest connect to other parts of the globe. Economic links between Latin America and both India and China have helped drive demand, Page noted, helping to produce positive results for the new Buenos Aires service. “The route has done extremely well,” he says. “We’re very pleased with it. We see a significant amount of business from the Argentine economy. We see significant trade being built up by the Argentine government, especially with China.”
CHANGES IN THE AIR
As in nearly every corner of the industry today, alliances play a big part in how airlines factor and build their market share, and pending mergers could create tectonic shifts in the trans-Atlantic marketplace.
The biggest changes — and the ones most guaranteed, if not yet fully understood — will come from the soon-to-finalize merger of Santiago-based LAN and Sao Paulo-based TAM, which will create the region’s largest airline. A member of Star Alliance since 2010, TAM maintains code share agreements with four European airlines: TAP, Lufthansa, BMI and Swiss — and earlier this year, the Brazilian carrier expanded its agreement with Lufthansa, allowing passengers to buy flights with the JJ code operated by the German carrier from Frankfurt to Rio de Janeiro.
But LAN is a member of oneworld, making it a trans-Atlantic partner of British Airways, Finnair and Iberia. If LAN decides to jump to the Star Alliance — or if TAM lands with oneworld — following the merger, some of the largest trans-ocean alliances in the region will be affected. Officials at both airlines are tight-lipped about their intentions.
Add to that the never-quite-predictable economic landscape, and the trans-Atlantic market is a route that must be navigated with care, according to Rocio Blazquez, sales director for Europe and Asia at Aeromexico, which claims a 25 percent share of the market between both Madrid and Barcelona, and 21 percent of the traffic between Mexico and France. “The current European economic slowdown and the significant increase in operating costs, primarily in the price of fuel, has had a major impact in the demand for tickets and seat offerings to the destination[s],” Blazquez says. “In 2012, Aeromexico will look to consolidate its position in the European commercial airline industry, and achieve brand recognition among travelers from the ‘old continent.’ In order to do this, the airline has diversified its sales channels via the Internet.”
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• In March, KLM introduced its Meet & Seat service on flights to and from Rio de Janeiro, Buenos Aires and Mexico City, which allows travelers to use Facebook and LinkedIn to share information with fellow passengers before their flight.
• TAP, which flies to multiple destinations in Brazil as well as to Caracas from its Lisbon hub, this year plans to roll out OnAir WiFi on its Airbus A330 aircraft flying between Lisbon and both North and South America.
• Air France is phasing in its Premium Voyageur product, a business class service, aboard the Boeing 747 aircraft used on its Paris-Cancun route.
• Last October, TAM introduced first class service on its flights between Milan and Sao Paulo.
• Iberia recently upgraded its business class product with flat-bed seats, and gave its menus a makeover with the creations of four different Michelin-starred Spanish chefs.