Friday 31 March 2023

The low cost airline boom

The segment of airlines that operate under the low-cost model had already experienced a rebound in recent years, but has had extra growth with the reopening, after the global stoppage of flights due to the pandemic.

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31 March 2023 - At The Banks - BCCR

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QCOSTARICA – There is no doubt that low-cost airlines expand the possibilities of traveling for many people and are helping to improve connectivity in Central America and the Caribbean. This is precisely the case of AraJet, a Dominican ultra low cost that has just started flights to El Salvador, Costa Rica, Guatemala, and, soon, to Panama, with fares much lower than usual.

The airline will also cover nine other countries on the continent, with several routes in each destination, especially in Mexico, Colombia and Ecuador.

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Read more: Low-cost airline, Arajet, takes off for Costa Rica on Monday

Its plans are ambitious because it presented 116 routes in its Economic Authorization Certificate (CAE) for future operations and it is expected to generate more than 4,000 direct jobs and some 40,000 indirect jobs in the next five years. In addition, it plans to transport up to seven million passengers a year, becoming the largest aviation company in Dominican history.

“Until September 16, we projected 45,000 seats per year. As of the opening in El Salvador (September 17), 89,000 are expected,” comments Víctor Pacheco, CEO of AraJet.

The Dominican Republic had long lacked a national flag carrier connecting the country with the rest of Latin America. Now, his steps are followed by at least two other local companies, interested in also reactivating their international flights.

Wingo, the low-cost airline of Copa Airlines’ air holding company, is also not far behind. In mid-August, it announced its new flight to the Dominican Republic from Panama, anticipating the one AraJet plans between Panama City and Santo Domingo.

These are signs that the commercial aviation industry is indeed beginning to heal after the 2020 crisis due to the pandemic, as the International Air Transport Association (IATA) has been saying, despite factors such as the war in Ukraine or the rise in oil. IATA forecasts that in 2022 demand will reach 94.2% of pre-crisis levels (2019), with low-cost airlines being the ones that will impose themselves most strongly in the region on the legacy model (full service).

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It should be considered that even Avianca redesigned its pricing scheme (although it denies that it has switched to the low-cost model) so that each passenger has a base rate and decides if they want to hire additional services, such as baggage registration and food, among others.

Industry in transformation

In fact, Federico Anliker, president of the Autonomous Executive Port Commission (CEPA), the administrator of airports and ports in El Salvador, acknowledges that, in general, the traditional structure of legacy companies is evolving at low cost because the market demands that reinvention, for the sake of competitiveness.

On the other hand, the low-cost concept is no longer synonymous with distrust for travelers, since 52 companies out of the 290 that are members of IATA are classified in that category.

In the region, the main low-cost carriers are Mexico’s Volaris (which since 2016 created a Central American subsidiary with operations in Costa Rica and El Salvador, where it was registered as the national flag carrier a year ago) and the American Spirit (in the process of merging with JetBlue, which has also flown to Costa Rica) and Frontier.

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Source: Revista Summa

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