Tuesday, June 28, 2016

NEW AIRLINE PLANS: Irelandia Aviation looking to buy Andes Lineas Aereas to start an Argentine Low-Cost Carrier

Andes Lineas Aereas MD-83, LV-AYD (c/n 53015), taxis at Buenos Aires Aeroparque (AEP) on 21Jun16.  (Phil Perry Photo)   

Andes as it operates today might disappear if Irelandia Aviation succeeds in buying all or part of the carrier to launch a new LCC in Argentina. 

Declan Ryan of Irelandia Aviation, the "airline development company" that has launched five different Low-Cost Carriers (LCC's), including Ryanair (Ireland), Allegiant (USA), Tiger Airways (Singapore), Viva Aerobus (Mexico) and Viva Colombia, was recently in Buenos Aires for the second time in two months for meetings with the Argentine Transportation Minister Guillermo Dietrich and Miguel Ziadi, the CEO of Salta, Argentina based Andes Lineas Aereas.

Irelandia wants to establish a low-cost carrier in Argentina now that the country is more open to new airline ventures under the new president and government that took power on 10Dec15 following approx. ten years of effectively being closed to any new carriers entering the market during the previous government.

Argentina - Air Travel Market that should be Triple its Current Size

The development company looks at Argentina as a severely underdeveloped air transportation market with only about 5-7% of Argentines having flown with the vast majority taking long-distance buses when traveling domestically.  According to Ryan, this results in "ridiculous" situations, such as students taking 20-hour bus rides from Buenos Aires to Bariloche (lakeside and mountainside resort near the Andes mountains) for their traditional end-of-school-year celebrations when they could cover the same distance in a 2-hour flight. 

Ryan pointed out that only 2.5% of Colombians had flown prior to LCC's entering the market there whereas today 10% have traveled by air.  On the other extreme, Spain, which has five LCC's, counts 70-80% of its citizenry as having flown.  Ryan estimates that his company starting an LCC in Argentina would triple the number of Argentines flying regularly to at least 20% of the population. 

Irelandia LCC entering Argentina through Andes like Avianca with MacAir Jet

Irelandia is looking at entering Argentina by the same means as Avianca did when it purchased MacAir Jet earlier this year, with Irelandia's acquisition target being Andes Lineas Aereas, an MD-80 operator with a fleet of five aircraft based in the northwestern Argentine city of Salta.  Ryan has indicated that it would take about five aircraft (presumably a more economical aircraft than Andes' MD-80's) and US$ 50 million to start an LCC in Argentina. 

Start up in 2017 using Alternative Airports

Target date for the new LCC startup is 2017 with a yet-to-be-defined route network that would consist of city pairs with lower-cost alternative airports that travelers would be willing to pay US$ 50 to fly between.  Ryan noted Cordoba (COR) and La Plata (LPG), located some 35 miles southeast of Argentina's capital Buenos Aires and serving a city of 700,000 in its own right, as interesting candidates for LCC service.                     

La Plata (LPG) has two runways but only one, 02/20, is in use with only half of its 4,679 ft. length currently available for flight operations.  Presumably the full runway could be developed for use plus its southwestern end is bordered by farmland that could possibly be purchased to extend its length.  The airport has a small terminal and ramp area but there is enough room on the existing airport property to expand the ramp significantly, build a reasonably-large terminal and add support facilities, such as hangars and parking for passenger vehicles. 

Obstacles to LCC's in Argentina

Although Declan Ryan sees plenty of opportunity in Argentina for LCC's, he notes that the following obstacles need to be overcome:

* Argentina currently has minimum airfare regulations that would need to be eliminated to allow LCC's to establish low enough airfares to stimulate market demand while still allowing for a profitable operation through efficient, cost-effective management.

* Nearly all of the airports in Argentina that have commercial service are run by Aeropuertos Argentinos 2000, a monopolistic private franchise, with fees that Ryan considers much too high, which are reportedly much higher than in neighboring countries.  In contrast, Colombia's airports are managed by four different companies, with airports competing with each other to attract airline service.       

* Argentina's airline labor unions are very strong making it difficult to introduce the idea of worker cross-utilization for multiple functionality in different job roles that would maximize efficiency and make it easier to offer low fares.         

More developments should be expected in the coming months. 

Sources:

http://www.lanacion.com.ar/1909895-declan-ryan-vamos-a-triplicar-el-total-de-argentinos-que-viajan-en-avion via Carlos Abella
https://es.wikipedia.org/wiki/Aeropuerto_de_La_Plata
https://www.google.com.ar/maps?source=tldsi&hl=en
http://www.airfleets.net/ficheapp/plane-md80-53015.htm

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