Saturday, December 23, 2017

Argentina Wants Cheap Flights—But Not Too Cheap: Government takes half steps on market overhaul out of concern about the cost of disrupting legacy jobs

The Wall Street Journal
By Taos Turner
Dec. 23, 2017 7:00 a.m. ET

BUENOS AIRES—Argentina’s pro-business President Mauricio Macri is inviting low-cost airlines to invest in Argentina’s uncompetitive air-travel market, as long as they do something they do nowhere else: keep their prices high.

That caveat is baffling not only to the companies, but also to the many Argentines, like 61-year-old Luís Segato, who badly want to see more domestic flights in the world’s eighth-largest nation.

“Argentina is the strangest country in the world. We are capitalist in our rhetoric but communist in our practices,” said the Buenos Aires resident, who mostly uses buses to travel around the country training firefighters. “How else can you explain why a pro-market government would tell airlines how much they can charge for tickets?”

Mr. Macri has slashed taxes, subsidies and red tape in an effort to make Argentina more attractive for investors. But when it comes to air travel and many other problematic zones of the country’s economy, he has run into hard political realities. The country’s powerful unions, secure in a long tradition of state protection that reaches back to the 1940s era of former President Juan Domingo Perón, are often not amused by notions of change.

The Macri administration has given Norwegian Air Argentina and Flybondi, a local startup, approval for new flights to scores of cities at lower fares—but not too low. The newcomers say they could offer seats like those sold in Europe for as little as $15—a quarter the cost of a typical 13-hour bus ride—if Mr. Macri would only let them.

The reason he isn’t, government officials and industry executives say, is that allowing low-cost carriers to compete too freely might destroy bus-driver jobs and hurt dominant carrier Aerolíneas Argentinas, a state-run behemoth with about 12,000 employees.

Argentina has a long history of heavy intervention in its economy. Until last year, it set caps and minimum prices on airfares and made it hard for foreign carriers to operate here. In 2009, Mr. Macri’s predecessor, Cristina Kirchner, a firebrand nationalist, expropriated Aerolíneas from a troubled Spanish travel company.

“It seems a bit crazy that in a country that’s suffering from inflation you’ve got a company that wants to lower prices and isn’t allowed to,” said Julian Cook, chief executive of Flybondi, which aims to begin offering domestic and international flights next year.

Mr. Macri has feverishly overhauled the economy in two years in office, enacting drastic measures to fight double-digit inflation, lifting foreign-exchange controls and reaching a debt deal with foreign creditors. More recently, Mr. Macri moved to change Argentina’s pension system, sparking violent street protests.

In some areas he faces steep resistance from strident union bosses, who say market-oriented policies displace workers and erode salaries.

Last year, after Argentina’s central bank encouraged banks to start emailing digital statements instead of sending them off in paper envelopes, a truckers’ union threatened to stop hauling cash to automated teller machines, citing fears that digital statements would mean less work. The central bank delayed its plans.

Such resistance highlights a constraint on Mr. Macri’s ability to modernize a country where many favor state protection over market competition.

“If they let these low-cost carriers in it will be raining cadavers,” said Pablo Biró, head of the pilots union, claiming budget airlines wouldn’t invest properly in maintenance.

Bus-driver unions also fear the worst. Roberto Fernández, head of the UTA transportation workers union, says budget airlines would deprive long-distance buses of passengers, killing up to 10,000 ground-transportation jobs. “Macri needs to tell me where those people are going to find work,” Mr. Fernández said.

Airline unions have repeatedly shut down airports nationwide, canceling hundreds of flights and leaving thousands of passengers stranded.

But carriers like Norwegian are undeterred and see opportunity in Argentina, which has Latin America’s biggest middle class but where people are only half as likely to fly as residents of countries with similar income levels, according to Aeropuertos Argentina 2000, which runs 35 airports in Argentina.

“We see the Argentine market the way other markets were 20 years ago,” said Ole Cristian Melhus, the regional head of Norwegian Air Argentina, which says it wants to invest up to $4.3 billion here.

Holger Paulmann, chief executive of Sky Airline, a budget carrier based in Chile, says he would offer domestic flights here—but only if he could set his own prices.

“The minimum fare in Argentina is probably eight to 10 times higher than the lowest fare in Chile,” Mr. Paulmann said.

Norwegian could eventually offer one-way tickets from Buenos Aires to Mendoza, home of Argentina’s famous Malbec vineyards, for just $15, Mr. Melhus said. The government-set minimum price is currently about $58.

“We are carrying out an airline revolution, but it’s a gradual process,” said Guillermo Dietrich, Argentina’s transportation minister.

There are other hurdles for airlines. Pilots are required to be Argentine citizens, and there aren’t enough of them. Mr. Cook estimates that up to 400 Argentine pilots work abroad, and says he is trying to entice them to work for Flybondi.

Meanwhile, jet fuel costs about 15% more in Argentina than in Chile or the U.S. Duties to import a new airplane are high, Mr. Paulmann says. And a single company, Intercargo, has a nationwide monopoly on airport services, raising operating costs.

Brazil and Colombia, which opened up their airline markets, attracted millions of new passengers who never flew before, said Andy Ricover, a transportation industry expert.

“Who’s opposed to that? The unions are holding back Argentina’s development by opposing deregulation,” he said.

Original article can be found here ➤ https://www.wsj.com

3 comments:

Anonymous said...

Argentina survives but never thrives. That is good enough for most Argentines. Look at the erratic to bizarre Papacy of Pope Francis and his obsessive Anti-Free Market rants. It reflects his Homeland’s Collectivist and Rent Seeking culture perfectly. Argentines have the not poor but second rate Society they deserve.

Anonymous said...

And Bernie and his cohorts in the Democrat party would love this kind of interference by the government in the US economy.

Anonymous said...

Look at the Brightside.

Argentine Malbecs are top drawer, and so is the befe asado and tango. Unfortunately, a nation can't eat, drink and dance itself into economic prosperity, though the effort does yield certain rewards.