The Wall Street Journal
By TAOS TURNER in Buenos Aires and ROBERT WALL in London
March 6, 2017 7:16 p.m. ET
BUENOS AIRES—Argentina’s government said Monday it plans to allow the first budget airline to begin flying in the country, opening up one of the biggest untapped domestic airline markets to increased competition.
The move, which includes the approval of 135 new airline routes, is the latest in a series of pro-business measures by President Mauricio Macri since he began overhauling the economy more than a year ago.
In January, oil-and-gas companies pledged to invest at least $5 billion after unions agreed to lower labor costs, and farmers have ramped up spending since Mr. Macri eliminated price controls and export taxes.
“We have fewer flights per capita than Bolivia and Ecuador and almost a third of the flights in Chile,” Mr. Macri told a news conference. “We are going to double the number of people that are flying.”
Argentina had about 10 million airline passengers in 2015 and aims to increase that to 22 million annually in 2019. The government will invest $1.4 billion through 2019 to improve airport infrastructure and attract new airlines, Mr. Macri said.
FlyBondi, the startup low-cost carrier seeking flying approval, expects to begin service with four planes in September, Chief Executive Julian Cook said in an interview. The airline hopes to grow with six planes each year and is targeting $600 million in sales by around 2021.
Mr. Cook said he and FlyBondi’s Argentine founder, Gaston Parisier, wanted to set up a discount carrier for almost a decade. But they felt Argentina’s political environment wasn’t conducive to launching an airline. They dusted off their plans after Mr. Macri took office, Mr. Cook said.
Budget carriers have come to dominate many of world’s biggest airline markets. Ryanair Holdings PLC has become Europe’s biggest airline by passenger numbers while AirAsia and Indigo have brought the low-fare, reduced-amenities business model to Asia and India. VivaAerobus and Interjet are among discount carriers operating in Mexico.
Mr. Cook said Argentina’s market, which is home to 44 million people, is “completely underdeveloped.”
Most Argentines, including those traveling for business, rely on long-distance buses for domestic travel. Many buses offer business-class seats similar to those on planes, but the trips can take more than 12 hours when flights could be measured in minutes.
Part of the problem in Argentina is that airline operating costs are higher in other markets, says Franco Rinaldi, author of a book about Aerolíneas Argentinas, the country’s state-run airline.
“You have to lower airport costs,” Mr. Rinaldi said. “Operating costs here are more than 50% higher than in Brazil and Chile. This is a big challenge to low cost airlines and to the desire of all airlines to lower costs.”
Mr. Cook said FlyBondi tickets will be cheaper than bus fares on its fleet of leased Boeing Co. 737 single-aisle planes, which contain 189 seats.
The biggest hurdle for FlyBondi and other airlines may not be boosting demand, but dealing with operational challenges Argentina still poses. Pilots have to be Argentine, so airlines face recruiting challenges to fill cockpit seats, Mr. Rinaldi said.
Labor unions are also among the most assertive in the world. Companies are unable to raise wages according to their own needs. Instead, industrywide collective bargaining agreements set salaries, making it harder to predict profit margins.
“The way it is now the market is very regulated, from prices to union rules, so companies are going to have to negotiate with the government and unions to make conditions more flexible,” Mr. Rinaldi said. “Otherwise, I don’t know think low cost operators will be economically viable.”
Argentina also has minimum pricing rules for airline tickets, though Mr. Cook said inflation, which economists say will likely total about 21% this year, should mitigate the effect by lowering costs in dollars. The government has committed to lifting those rules, he said.
Guillermo Dietrich, Argentina’s transportation minister, said FlyBondi’s entrance will help push tickets prices lower, encouraging people to fly.
Mr. Cook expects others to enter the market, but said he isn’t concerned about competition.
“The market is big enough,” he said.
Original article can be found here: https://www.wsj.com