U.S. airlines grow routes, frequency to Latin America

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Airlines are lusting for Latin America, opening new routes and fighting for slots to cash in on sizzling markets, hoping to soften the blow of high fuel prices and economic hardships elsewhere.

Though many carriers south of the border face the same financial struggles as their northern counterparts, carriers from outside the region evidently feel that the market's long-haul destinations are worth the gamble.

For U.S. domestic carriers, a foray south of the border represents a safe international hedge against the continuing dismal North American forecast, because the north-south routes require less investment and risk than longer-haul east-west flights.

JetBlue CEO David Barger told analysts in July that the airline would be focusing along the north-south lanes in the future.

"The highlight that I would share would be into the Caribbean and the international markets and across Mexico, North and South America and Central America," he said.

For international airlines outside the Americas, the Latin market is simply a sound investment in a blossoming market, thanks to the growing economies of Mexico and Brazil.

"Economically, that part of the world is strong," said Woody Harford, British Airways' senior vice president for commercial aviation in the Americas. "You want to seize the opportunity."

With the recent discovery of huge oil reserves off its coast, Brazil is poised to become an even bigger player on the international business scene.

As Brazil goes, so goes South America. This year, Brazil expects to book about $190 billion in exports.

British Airways, which had been flying to Rio de Janeiro and Buenos Aires as extensions of its London-Sao Paulo flight, will start direct flights from London to Rio and Buenos Aires, while maintaining the direct Sao Paulo service.

Delta recently announced it would offer two nonstop flights starting in mid-December between Atlanta's Hartsfield-Jackson Airport and the Eduardo Gomez Airport in the Brazilian city of Manaus. On Dec. 22, Delta will start service between Atlanta and Fortaleza Airport in Brazil via the Guararapes Airport in Recife. Fortaleza and Recife are both major northeast tourist hot spots.

Delta eyes 'continued expansion'

"These new flights are the result of the recent limited expansion of the bilateral agreement between the governments of the United States and Brazil," said Christophe Didier, Delta's vice president of sales and government affairs for Latin America and the Caribbean. "We look forward to continued expansion of this agreement."

Delta also is looking at starting service between Miami and Belo Horizonte, Brazil, and has also applied for Los Angeles-Sao Paulo service.

Continental recently announced its first nonstop flight from Houston to Rio de Janeiro three times a week between Dec. 17 and Feb. 28.

U.S.-based SkyWest Airlines is buying a 20% stake in the Brazilian regional carrier Trip for $30 million.

And American Airlines is adding three destinations in Brazil this November: Salvador, Recife and Belo Horizonte. American will start daily flights from Miami to Salvador and Recife on Nov. 2, and initiate three-times-weekly flights from Miami to Belo Horizonte on Nov. 4. American's hub in Miami makes all three Brazilian destinations easily accessible from dozens of other cities, as well.

A recent Boeing outlook report suggests that the region might be ripe for such foreign investment. Latin American carriers provide only 25% of the regional capacity, the report said. Brazil's Gol and other low-cost carriers now account for more than 40% of the domestic market.

In Latin America's second largest market, Mexico (where only 5% of the population travels by air), six low-cost airlines have initiated service since 2005.

"With a growing middle class, Mexico seems ripe for a transition from bus-dominated transport toward low-cost air travel," the report said. "The large number of Latin American residents in the United States also presents great potential for new cross-border service."

IATA's September industry financial forecast said the Latin America GDP was likely to dip in 2009, mirroring global GDP expectations. IATA also predicted slight dips in the growth of Latin American traffic volumes and capacity in 2009, as well. But that's still better than the actual shrinking volumes and capacity predicted for North America.

It's been a tough environment for Latin American carriers.

In Argentina, the senate approved the nationalization of Aerolineas Argentinas and its subsidiary, which together carry an estimated $900 million debt.

In Brazil, authorities recently rejected a proposed restructuring plan for the Sao Paulo-based carrier VASP, declaring it insolvent.

Meanwhile, GOL recently restructured and downsized its fleet, as it posted a $104 million Q2 loss.

But Latin America offers a bit of a silver lining, relatively speaking.

"These South American economies are growing faster than the U.S. economy," said Pablo Yunis, Lan Airlines' vice president. "The network there develops more revenue than the long-haul services to Europe and the U.S."

The North America-Latin America market remains one of the top 10 trading lanes for air freight, according to consulting firm OAG Back. Latin America's economic growth rate, OAG said, should be comparable to Europe's and much better than that of North America.

Upbeat forecasts

"Growth between bordering economies will maintain a steady pace of growth through the next 10 years as Latin American countries continue to benefit from rebounding economies, strong perishable exports and high-tech exports and intermediate goods," OAG forecasted.

Boeing, too, remains upbeat about the market, predicting a 6.1% increase in indigenous average annual traffic

as a growing middle class finds air travel more accessible and affordable.

"Projected traffic growth rates for Latin American carriers are among the highest in the world," Boeing reported.

The Argentina Tourism Office reported that U.S. and Canadian visitors to the country grew by more than 35% between 2005 and 2007. So there's been some interest in raiding or expanding those markets, especially during this summer.

The DOT granted flight rights to Aerovias de Mexico between Mexico and the U.S. as a codeshare with Continental.

ABC Aerolineas (popularly known as Interjet) also received approval for flights linking Toluca, Mexico, with Ontario, Calif.; Houston and San Antonio; plus service to Houston from Guadalajara and Monterrey, Mexico.

United plans to start year-round service beginning Dec. 20 between Los Angeles and Puerto Vallarta, Mexico.

Air Ecuador received approval for flights between the Ecuador cities of Quito and Guayaquil and New York. 

Spirit Airlines applied to the DOT to scoop up the seven frequencies returned by Continental, which terminated its Houston-Cali, Colombia, and Guayaquil service.

Other carriers want to keep unused Latin American slots, even as they make cuts in other markets.

JetBlue, for example, in response to the suggestion it give up its Colombia slot awards, told the DOT this summer: "In response to the current conditions facing the airline industry as a whole and JetBlue specifically, JetBlue has recently announced that it will be cutting service on certain routes, while adding service on other routes. JetBlue ... is not and will not cut service on any of its international routes, and in fact, is expanding its international flights later this year, and JetBlue remains fully committed to instituting ... service on a schedule that would allow it to enter the Bogota market at the proper time."

For many airlines, however, the time for expanded Latin American service is now. 

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