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Newbie airline Latin American Wings is going where others fear to tread: crisis-ridden Caracas. Even more remarkable, it’s making money.
The Santiago-based carrier has been turning a profit by flying immigrants to Chile from Venezuela and Haiti since it started operating early last year, Chief Executive Officer Andres Dulcinelli said. Flights arrive in Santiago full and leave half empty as immigration to South America’s wealthiest nation soars.
While companies such as Delta Air Lines Inc., Latam Airlines SA and Avianca Holdings SA have nixed flights to Caracas on security issues and the near impossibility of getting money out of the country, LAW, as the airline is known, has expanded. Its secret? A deal with local carrier Aerolineas Estelar Latinoamerica CA, which takes care of the hassle of converting bolivars into dollars. Now, the budget airline is planning to increase flights to Caracas and across Latin America.
“If Latam Airlines and Avianca are cutting capacity, and demand in the region keeps growing at 10 percent per year as it has been in recent years, it’s a huge opportunity for companies such as Sky, JetSmart or us,” Dulcinelli said, referring to other new carriers arriving in the region. “There’s still a lot of room for everyone to grow.”
The carrier currently operates five Boeing 737s and plans to close the year with eight of those models, plus two 767s, all second-hand. Its long term goal is to expand the fleet to 20 737s and to as many as four 767s, transporting 3 million passengers by the end of 2018, five times this year’s target.
The airline industry as a whole has about $3.8 billion trapped in Venezuela and says that complaints to local authorities fall on deaf ears, Peter Cerda, airline association IATA’s regional vice president for the Americas, said in July.
Latam Airlines gave up slots last year, which LAW took over. Shortly thereafter, LAW reached its deal with Estelar.
“All the sales there go to Estelar’s accounts and once a month we transfer between our accounts,” Dulcinelli said. “They take care of the legal process of getting the dollars and it has worked spectacularly.”
Dulcinelli is one of five partners backing LAW and says he previously worked at several local airlines such as Lan Cargo, a unit of Latam before its takeover of Brazil’s Tam, as well as at Ladeco, Sky Airline and PAL. Boris Serrano, chief executive officer at Estelar, declined to identify the owners of that airline.
Icelandair Group HF recently agreed to provide LAW with aircraft and pilots for two weekly Santiago-Caracas-Miami and Santiago-Caracas-New York flights beginning in October. The deal will be valid for a few months until LAW receives Boeing 767s to serve those routes, Dulcinelli said.
Icelandair hopes to cooperate on other routes as it “sees LAW as a good strategic partner in South America,” Gudni Hreinsson, Managing Director at unit Loftleidir Icelandic, said by email.
The entry of low-cost operators and “full-service low-fare” carriers such as LAW is creating an opportunity as lower ticket prices spur demand from people who haven’t flown before, according to Nicolas Mirman, senior consultant at Ailevon Pacific Aviation Consulting.
“The market is simple: if you charge low enough, the market will respond because travel, in the end, is a commodity,” Mirman said by phone from Dallas.
Last year, LAW sold $19 million in tickets and posted net income of $1.6 million. For this year, Dulcinelli expects to sell $150 million and post net income of about $10 million. It’s a stark contrast from Latam, which had net income of $69 million in 2016 from sales of $9 billion.
The company is planning more domestic flights, as well as new routes to Paraguay, Uruguay and Argentina. Moreover, its recent acquisition of rival Star Peru should allow for expansion to Colombia, another major source of immigration for Chile.
LAW’s tactic of focusing on immigration routes has sparked controversy. Last year, the company sued a local TV channel after it mentioned the airline as part of a Haitian human trafficking ring. Dulcinelli says he and his family have received death threats, which are under investigation.
“Unfortunately, there’s still a lot of racism here,” the executive said. “I’m pretty sure that nobody would complain if all my passengers were blonds with blue eyes.”
Once Venezuela stabilizes, LAW’s current foothold in the country will be very valuable, Dulcinelli said.
“Our bet, in a market in which everybody ran away, is to say ’we’re here,’” he said. “When the situation resolves, either for one side or the other, then I think they’ll remember who stood firm.”