Norwegian Air is betting that its low-cost model can thrive amid Argentina's economic challenges. Will the long-term vision be enough to carry it through any short-term turbulence?
The company is betting that a weaker peso will attract foreigners and a recession at home will boost domestic travel, said Ole Christian Melhus, chief executive officer of the Argentine unit, in an interview. The company, which began selling tickets Tuesday for in-country flights in Argentina to begin Oct. 16, is pushing for its low-cost flights to stand out in the middle of a currency rout.
The airline is offering round-trip flights for 699 pesos ($18) between Buenos Aires and Cordoba, and for 999 pesos ($25) for the Buenos Aires-Bariloche route.
In comparison, Latam Airlines is offering tickets — by way of a mega-sale — on the Buenos Aires-Cordoba route on the same dates for 1,673 pesos. Buenos Aires to Bariloche costs 3,609 pesos. Aerolinas Argentinas is also having a big promotion, charging 998 pesos for Buenos Aires-Cordoba.
It’s a tricky time to be betting on Argentina. The country’s economy is expected to contract at least 1 percent this year, a far cry from earlier forecasts this year, which saw it growing 3 percent. Inflation remains stuck in the double digits, and the peso is the world’s worst emerging market currency this year, weakening 53 percent. The latter is an issue for airlines, which sell tickets in local currency but pay for the majority of costs — like fuel and airplane leases — in U.S. dollars.
But that’s just why the bet might work, Melhus said. He expects more foreigners will want to visit the country and locals will forgo foreign destinations that have become more expensive. The company has a mitigation strategy to hedge against foreign exchange volatility and inflation, Melhus said, declining to provide details.
“The financial situation in Argentina is a concern for everyone, especially for the aviation sector,” Melhus said. But, “we’re here for the long-term.”
It also appears to be the right time. A record 1.3 million people flew on domestic flights in August in Argentina.
Norwegian is one of several low-cost carriers jumping into Argentina amid President Mauricio Macri’s push to open routes to new players and lower consumer costs. It began flying from Buenos Aires to London in February. Flybondi SA is among the companies also looking for opportunities and began flying domestic earlier this year.
The government recently scrapped a regulation setting minimum prices.
Norwegian, which is also beginning operations linking Brazil to its London hub, plans to begin flights from Buenos Aires to major Brazilian cities in 2019, the CEO said.
“There has been a very good response in the first hours of the sale,” said Melhus. “Inflation and the weak peso are both a concern, but our fares are so much lower than the legacy carriers, that they’ll want to travel with us.”
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Photo credit: A Norwegian Air plane is pictured. The low-cost carrier is selling in-country flights in Argentina for fares as low as $18. Eric Salard / Flickr