Opening Argentina’s air routes to competition will take time

Bloomberg

Argentina’s airline passengers must wait for a more competitive market while the government focuses on improving the country’s infrastructure to be able to handle more flights, even as Avianca Holdings SA and others show interest in entering the market.
Argentina is spending $1.35 billion over four years to upgrade its air transport infrastructure, partly to refurbish 17 airports, Transport Minister Guillermo Dietrich said in an interview in Buenos Aires. New entries into the market will take a long time, and there are no plans to lift regulations for foreign carriers to compete in domestic routes, he said.
The South American nation has little competition in domestic routes, with Latam Airlines Group SA representing the only major rival. Reducing airfares and offering more routes and flights could help further President Mauricio Macri’s goal of fostering more economic activity in the country. Avianca, based in Bogota, acquired MacAir Jet, a small airline once owned by Macri’s family, earlier this year but is beset by its own financial constraints. Declan Ryan, who co-founded Ryanair Holdings Plc, has told Argentine news outlets he aims to enter the market.

CREAKING CAPACITY
Argentina can’t handle a large increase in flights due to its creaking capacity, Isela Costantini, chief executive officer of state-owned Aerolineas Argentinas, said in a separate interview. The company is working to make itself more competitive for when other players enter the market, she said. The government currently sets minimum prices for airfares, which has helped Aerolineas Argentinas avoid getting undercut by more efficient rivals.
“If you ask yourself what would we gain if the lower price limit was lifted — we’d fly more but to which airports?” Costantini said on the sidelines of a business forum in Buenos Aires. “There’s opportunities to grow in this market without touching prices.”
Aerolineas will be cash-flow positive within two or three years and will break even on net income in four years, Constantini said. The company has cut its projected loss for this year to about $350 million from $1 billion thanks to cost cuts.
Aerolineas plans to add one or two planes to its international fleet of 13 over the next three years. It will also replace three Airbus A340s by mid-2018. It has a fleet of 79 planes from Airbus Group SE, Boeing Co. and Embraer SA. The government will continue to remove certain subsidies given to Aerolineas, Dietrich said.
The air transport investments are part of Argentina’s plan to spend $24 billion to $26 billion in several types of infrastructure over four years, including $12.5 billion on highways. After announcing a $14 billion plan over eight years to upgrade railway lines, Dietrich said a further $2.5 billion will be invested in cargo trains and routes.