The International Air Transport Association (IATA) has urged Latin American governments to change their attitudes toward the aviation industry, warning that the rising airfare could make air travel unaffordable for many people in the region.
The governments in the region should modernize their infrastructure and stop imposing hefty taxes on the aviation sector, insisted IATA regional Vice President Peter Cerda in a recent briefing.
Some governments in the region see air travel as a “cash cow”, he said, while increased taxes and the COVID-related testing and restrictions are pushing airfares higher and higher.
“The industry has lost money [in the past years] and not been competitive because governments have continued to impose barriers,” reported Flightglobal.com quoting Mr. Cerda.
Aviation Takes a Nosedive
The IATA’s comments come the sharpest traffic decline in global aviation history during 2020. According to the aviation association, international passenger demand was 75.6% below the level record in 2019 as countries closed borders, governments imposed lockdowns, and consumers avoided air travel on grounds of safety. Domestic demand also saw a nosedive, falling 48.8% in comparison to the previous year.
The impact on the region’s airlines has been devastating. Several companies filed for bankruptcy protection, including Mexico’s flag carrier Aeromexico, as well as Colombian flag carrier Avianca. The filing, said the Colombian airline, was forced by an income drop of 80% in the first few months of the pandemic as its entire fleet was grounded.
In Latin America, some 33% of countries still have some kind of quarantine measures in place. Mexico is the only country in the region that did not restrict air travel at any point during the pandemic while some countries, including Trinidad and Tobago, have yet to fully open their borders.
Prior to the pandemic, the aviation industry contributed US$167 billion to the region’s GDP, in addition to supporting more than 7 million jobs. Now, this figure has been reduced by a staggering US$77 billion, according to the IATA’s recent statement. The statement also noted that “Latin American and Caribbean governments remain the least supportive of aviation” as countries have refused to bail out their airlines.
However, for Latin American governments, there are other issues to consider. During the cancellation of the New Airport for Mexico City by President Andrés Manuel López Obrador, the president cited the low number of citizens able to use air travel and suggested the original airport plan would not bring many benefits to Mexican nationals.
A Taste of Things to Come?
Prices for national travel within the U.S. saw a 5% hike during the first half of 2020 as capacity reductions and rising fuel prices amid rose amid a global shortage. In this context, rising air travel costs in Latin America are hardly unexpected. Even with increasing ticket costs, the region is a renewed force in outsourcing.
With a slow recovery forecast over the next few years, prices for international travel could fluctuate too, posing additional questions for companies involved in the outsourcing market. According to PwC, the forecast slow demand could see up to 5,000 older aircrafts retired with companies forced to make the decision on whether to upgrade and replace or continue with a smaller fleet.
If prices do rise, or aviation fleets do shrink, then the cost-benefit doubts U.S. companies already had of their long-distance operations are likely to continue. The dramatic fall from grace of major outsourcing markets like the Philippines may play into the hands of Nearshore BPOs. Those best placed to take the opportunity will see a brighter future.