AIR TRANSPORT IN THE AMERICAS

Strong performance for most markets and good profits for US carriers after restructuring

Air transport in America continues to grow, with North American carriers being again among the most pro table in the world after a decade of restructuring and consolidation. Today, the continent is dominated by 15 large airlines of which eight are home-based in the United States.

North America is currently enjoying a boom in passenger traffic not seen for at least 15 years. The consolidation move since the early 2000s saw the bankruptcy of important carriers such as Canadian Airlines, Mexicana and Varig (Brazil) and many mergers such as Delta with Northwest, US Air with American Airlines, Continental with United, TAM with LAN Group and Avianca with TACA. The rationalisation movement was however not followed by a sharp increase in fares. Competition remains strong not only between large carriers but also due to the ongoing development of budget airlines.

NORTH AMERICA IS CURRENTLY ENJOYING A BOOM IN PASSENGER TRAFFIC NOT SEEN FOR AT LEAST 15 YEARS

According to Airlines of America (an association grouping most US carriers), US domestic airfares were multiplied by 2.5 between 1971 and 2015, compared to 5.9 times for USA CPI (Consumer Price Index). In the past 25 years, the Fare Index for an air ticket was up by 34% compared to 87% for food and 88% for public transport. Last year the US air transport industry reached a historical record of 796 million of passengers travelling on scheduled services while the average load factor reached 83.7%, another record! Consequently, the net income of US carriers cumulated US$55.8 billion in net revenues between 2010 and the first half of 2016 compared to a loss of US$65 billion between 2001 and 2009.

SOUTH AMERICA – A BRIGHT FUTURE

Despite ongoing weakness in Brazil and Venezuela – both countries are currently affected by economic recession – South America remains one of the world’s fastest growing continents for air transport. Passenger traffic on locally registered airlines grew between 2010 and 2015 by 54%, reaching a total of over 242 million passengers.

LATAM Boeing 787 Dreamliner - cordillera 2_livery_rolling_out_across_entire_aircraft.jpg

LATAM livery is rolling out across entire range of aircraft

Two of the US’s largest global airlines, American and Delta, believe that Brazil in particular has reached an inflection point, and they sense a slight improvement occurring on routes to Brazil due to a rationalisation of capacity in those markets.

After steep revenue declines in its Brazilian markets, American expects it could post positive unit revenue results in those markets during 3Q2016, while Delta is citing positive trends for its Latin American entity that should continue into 2017.

Of course, it will take some time for airlines to reach the levels of revenue performance they enjoyed before Latin America’s economy began to contract, but the start of the slow climb out of the revenue doldrums is a welcome sign for a region that remains one of the most promising over the long term.

Chile meanwhile recorded a solid 9.7% increase in passenger growth for the first seven months of 2016, with domestic passengers growing 9% and international passenger growth reaching nearly 11%. Although Chile has not been immune to the economic degradation in Latin America, its economy is more stable than in other countries in the region.

 

CONSUMERS GAIN FROM AMERICAN CARRIERS’ RECORD PROFITS

The return of financial benefits for North American carriers translates into benefits for the consumer. All large airlines are nowadays purchasing latest generation aircraft (Airbus A350, Boeing 777-300LR and Boeing 787 Dreamliner). This helps not only in reducing fuel consumption, but also in providing more comfort for passengers in all classes of services.

With fuel-savvy aircraft, airlines are also thinking expansion, including long- haul routes to secondary destinations. In Europe for example, Air Canada recently launched a daily flight to Lyon, American will launch Amsterdam- Dallas next March, Delta will fly in May from New York to Berlin while LATAM is planning to serve Lima out of Barcelona.

Mexico also is benefiting from strengthening ties with the United States and of a more liberal open sky agreement with the USA. Most large US cities are now linked by air to their southern neighbour with new routes opening almost every month.