MARKET REPORT

Argentina: Low-Cost Airlines - the New Protagonists

SEPTEMBER 2018

Argentina: Low-Cost Airlines - The New Protagonists Market Report - September 2018

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Low-Cost Airlines: The New Protagonists in Argentina

Since its creation, the Argentine air market has been extremely closed, almost a monopoly. This caused a concentration of routes to few cities, meaning higher prices and poor customer service.

But the situation began to change last year with the opening of the air to the ‘low-cost’ players, promoting new routes and facilities for both for locals and foreign tourists.

According to the International Air Transport Association (IATA), low-cost Airlines have increased substantially in Latin America over the last few years, from 6% of the market in 2003 to 36% in 2017, similar to the figures in the US (34%) where these companies first stated in the 1970s and where the business model has become established.

These figures are expected to grow in 2018 boosted by the regional economic recovery and the interest of big transport firms in entering this market.

Capacity Growth of LCC in Latin America

Source: International Air Transport Association (IATA).

In Argentina, the low-cost Airlines phenomenon burst into the market early this year with the arrival of Flybondi, who currently holds 4% of the Argentinian market share after a few months of operation (268,000 passengers from January to June 2018).

It is also expected that the demand for low-cost flights will continue to grow thanks to other companies who are interested in operating. These include Norwegian, the third largest low-cost airline in Europe who would offer different routes and European destinations with connections in London, and Jetsmart, a Chilean airline planning to operate domestic flights with Cordoba as a hub and international flights to Santiago de Chile, Rio de Janeiro and Sao Paulo.

6% 7% 8% 12%15%

19%23%

26%29%

30%35%

35%35% 34%

36%

0

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100

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300

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450

500

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Total Seats in Region Total LLC Seats in Region

Argentina: Low-Cost Airlines - The New Protagonists Market Report - September 2018

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Map of flight routes of Flybondi.com in Argentina

Source: EANA (Argentine Air Navigation Company). Jul 2018

No. of Passengers & Market Share of Flybondi

Source: EANA (Argentine Air Navigation Company). Jul 2018

Domestic Flights & Occupancy - Argentina Airlines (Jan-Jun 2018)

Source: EANA (Argentine Air Navigation Company). Jul 2018

2,000

21,000

52,00057,000

70,00066,000

2%

4%5%

7% 7%

0%

2%

4%

6%

8%

10%

12%

14%

0

10,000

20,000

30,000

40,000

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100,000

Jan Feb Mar Apr May Jun

No of Passengers Market Share (%)

24,757

21,588

8,044

2,2123,484

1,887

4,950

74%

78% 78%

64%

74%

70%

Aerolineas Argentinas

Austral LATAM Flybondi Andes Avianca Others

Flights Occupancy

Argentina: Low-Cost Airlines - The New Protagonists Market Report - September 2018

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Market Share - Argentinian Airlines (Jan-June 2018)

Source: EANA (Argentine Air Navigation Company). Jul 2018

There is a state policy framework in place aimed at increasing competition in the air traffic business. The most significant change is the recent elimination of the minimum fee range, which benefits low-cost airlines as they can compete in price, their main distinguishing factor.

El Palomar Airport is the third city airport in BuenosAires (after Ezeiza and Aeroparque) and headquarters to the Flybondi airline. By the end of 2018 it will become international after the first international flights of the airline are included.

Future Routes

Domestic Airline Aircraft Date

Mar del Plata Flybondi B737-800 Dec 2018

San Juan Flybondi B737-800 2018

Comodoro Rivadavia Flybondi B737-800 2018

El Calafate Flybondi B737-800 2018

Ushuaia Flybondi B737-800 2018

International Airline Aircraft Date

Santiago de Chile Flybondi B737-800 Oct 2018

Montevideo, Uruguay Flybondi B737-800 Oct 2018

Punta del Este, Uruguay Flybondi B737-800 Dec 2018

Río de Janeiro, Brasil Flybondi B737-800 Dec 2018

Asuncion, Paraguay Flybondi B737-800 Oct 2018

Bogotá, Colombia Flybondi B737-800 2018

Santiago de Chile JetSmart A320 Nov 2018

Lima, Perú Viva Air Perú A320 2018

Aerolineas Argentinas

46%

Austral25%

LATAM16%

Flybondi4%

Andes7%

Avianca1%

Others0%

6,555,000Passengers

Argentina: Low-Cost Airlines - The New Protagonists Market Report - September 2018

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On average, low-cost air tickets in Argentina are 48% lower than traditional air tickets. This will no doubt end in a price war, as there are new players in the market. This will unquestionably also bring about an increase in the demand of these kind of tickets. Traditional Airlines vs Low-Cost Airlines (Sept 2018)

Source: www.aerolineasargentinas.com; www.latam.com; www.flybondi.com

The decrease in the price of air tickets had a direct impact in the market of long distance buses, which have lost between 35 and 45% of the market share of passengers transportation.

Long Distance Buses vs Low-Cost Airlines (Sept 2018)

Source: www.plataforma10.com; www.flybondi.com

Opportunities and ChallengesThere are many opportunities in Argentina for the development of the low-cost market such as:

• Closer destinations: they will be closer in terms of time and money, making it easier for economy passengers to have access to this kind of transportation.

• Greater integration: an increase in national, regional and international connections.

• Economic growth in areas that are difficult to access today

• An increase in employment: not only in Airlines but also a parallel growth in other related economic activities such as tourism.

• A greater development of tourism: opening of new markets not only related to leisure, but also resulting in a bigger development possibility of the MICE (Meeting, Incentive; Congresses and Events) and Corporate markets (the destinations to which it arrives and from the cities from which they leave), stimulation of new demand, changes in the way of organizing the trip or effects on seasonality.

Aside from these possibilities, it will also be very important to focus on the following challenges:

• Adapt to the specific geographical characteristics of the continent: distances between cities in Argentina are much greater than, for example, distances between European cities.

• Achieve a peaceful coexistence of transportation markets: it can be challenging to reach a balance between the different interests of the land and the air transportation industries.

56%

43% 47% 46% 48%

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$-

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Córdoba Mendoza Iguazú Bariloche Salta

Traditional Airlines Low Cost Airlines Rates gap

37%44%

51% 49%54%

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$1,000.00

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Córdoba Mendoza Iguazú Bariloche Salta

Long Distance Buses Low-Cost Airlines Rates Gap

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AUTHOR:

Sergio GiorgettiDirector Horwath HTL Argentinasgiorgetti@horwathhtl.com

Sergio has led the fieldwork in several projects in Argentina, Brazil, Chile, Ecuador, Mexico and Colombia, and has also participated in the development of strategies to define competitive mixed-use projects attractive to the market in terms of product, finance and economic performance.

His experience includes the strategic analysis and development of mixed-use projects including diverse business units such as: resorts, hotels, golf courses, sports centres, retail, offices, residences and other tourism facilities; taking into account the complexity and uniqueness of each scenario and evaluating the available funding options for the project.

Sergio has participated in several projects throughout the region such as Feasibility Studies for the development of ‘limited services’, 4* and 5* hotels in Argentina, Chile, Brazil, and Conceptualization Studies for the development of mixed-use projects in Rio Negro and Buenos Aires (Argentina), Guayaquil (Ecuador), Cancún (Mexico), amongst other cities. Additionally, he has also participated in the design of the Tourism Development Plan for the Province of Jujuy, Argentina, Thermal Tourism Product Club in Chile, and the Study for Hotel and Tourism Investment in Colombia.

www.horwathhtl.com

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