It’s no secret Argentina’s economy is in bad shape.
The country’s peso has fallen more than 50 percent against the U.S. dollar so far this year. Meanwhile, the government statistics agency Indec reported Argentina’s gross domestic product declined 4 percent in the second quarter year-over-year, and consumer prices rose 3.9 percent in August compared with the previous month.
Yet while Argentina is struggling with inflation, airlines are offering cheaper airline tickets due to a unique mix of other factors. Clearly, 2018 is not a banner year for the Argentine economy, but it could be an important one for its growing aviation sector.
One of the reasons Argentina is seeing cheaper prices is because there are now more airlines competing for passengers.
This didn’t happen by chance— the influx is due to policies recently enacted by President Mauricio Macri to expand the country’s aviation market and stimulate competition. The administration’s aviation plan, unveiled early last year, called for the opening of 135 new air routes in the country and other investments in airports and infrastructure.
Both new and existing carriers have introduced these new routes, and several are on a mission to offer low fares. One notable startup is Flybondi, which bills itself as Argentina’s first ultra-low-cost carrier. It has transported nearly 550,000 passengers since its inaugural flight on Jan. 26, an airline spokesperson said, adding that about 80,000 had never flown before.
Flybondi operates five Boeing 737-800s, but plans to grow its fleet to 28 by 2021. It flies to 13 cities in Argentina today: Bariloche, Bahía Blanca, Buenos Aires, Córdoba, Santiago del Estero, Corrientes, Neuquén, Tucumán, Salta, Jujuy, Iguazú, Posadas and Mendoza. It also plans to begin regional flights in December, the spokesperson said.
Flybondi is unique in that it operates from the military base Aeropuerto El Palomar, which recently became equipped with an instrument landing system for air traffic control following a spate of weather-related cancellations. That helps the airline operate more efficiently.
However, Flybondi will soon have to compete against a heavy-hitter: Low cost giant Norwegian Air. The airline’s U.K. subsidiary began flights between Buenos Aires’ Ezeiza international airport and London Gatwick on Feb. 14, but its Argentina operation will next begin flying within South America. It will go head-to-head with Flybondi on some routes.
Norwegian, which plans to operate from Buenos Aires’ close-in Aeroparque airport, started selling tickets for Córdoba and Mendoza flights under the local subsidiary on Sept. 4. More destinations from the capital will appear this year, Norwegian Air Argentina’s Communications Director Matías Maciel told Skift. These include Iguazú Falls, Neuquén, Salta and Bariloche. London frequencies will also increase from four times per week to daily on Dec. 1, he added.
Norwegian plans to end the year with four Boeing 737s based in Argentina, but has aspirations of quickly becoming a major carrier in the region. Maciel said the fleet plan calls for 10-15 aircraft by the end of 2019, and between 50-70 in the next 5 to 8 years. The Argentine business could even start offering Boeing 787 flights to Europe as early as 2019 or 2020, he said.
“Norwegian’s plans for Argentina are long-term commitments,” he told Skift. “We are not thinking of an operation for this year or next year. Our plans is to have a very, very big operation in the long-term.”
Maciel said that while the economic situation is “complicated,” the airline hasn’t changed its overall plan due to the current economic volatility.
“We are working [under] the same plans that we originally introduced to the people here—to the authorities, to the media,” he said. “We are not changing the plans at all.”
No More Minimum Fares
While competition generally translates into more attractive fares, pricing in the Argentine market is also being influenced more directly by a recent regulatory change. The Argentine government recently rolled back a regulation that outlined minimum prices for airline routes.
To celebrate the rule’s end, some carriers offered low promotional prices in early August. Flybondi sold one-way fares as low as 199 ARS (about $5), and newspaper La Nación reported Aerolíneas Argentinas offered one-way flights for 499 ARS (about $13).
“We think it’s excellent news,” Norwegian’s Maciel said. “Thanks to that decision, many more Argentines will begin to fly, and domestic tourism will be significantly revitalized.”
That carrier’s cheapest round-trip tickets, on flights between Buenos Aires and Córdoba, are priced at 699 ARS ($18.75).
Inflation has not appeared to significantly affect the new fare offerings much, at least so far.
Norwegian said it has not had to adjust prices for inflation, but only started selling tickets a few weeks ago. Flybondi said final ticket prices have only increased minimally.
However, pricing is just a piece of the puzzle. Labor actions, such as as a general strike called Sept. 25 across the country to protest Macri’s handling of the economy, can unexpectedly throw a wrench into airline operations.
Also, IATA, the global airline industry group, said air travel demand has also “clearly slowed” on flights touching Argentina this year. It noted the weaker economy poses challenges across both LCCs and legacy carriers, and said it expects business and leisure travel to be affected.
“A deterioration in economic conditions also makes for a less attractive market for potential new entrants,” IATA said in a statement, adding: “For airlines whose business models are based on stimulating demand through low airfares, the rise in costs will present clear challenges.”
The currency devaluation also means higher dollar-denominated costs for oil and jet fuel, and suggesting international travel should more expensive for Argentines, IATA said.
“The airline industry is resilient to demand shocks, but the industry impact will depend critically on the depth and duration of the economic downturn,” IATA said. “It is too early to know exactly how this situation will develop.”