Norwegian Air seizes unique airline opportunity in Argentina
South America is a vast, far-away place, but it is to be found on every traveler’s bucket list. Until recently, it has also been an expensive place to fly to. One country, however, the second-largest in the continent, has shaken up its airline industry, scrapping regulation on minimum domestic airfares and allowing low-cost travel around the country, and the continent overall, to skyrocket. That country is Argentina, Latin America’s third-largest economy. And Norwegian Air Shuttle is among the many LCCs joining the race to enter the Argentine airline market, as it prepares to launch its newest subsidiary – Norwegian Air Argentina – in over a month’s time. Norwegian Group believes their offspring carrier should help keep prices low and make travel from South America to other points around the world much easier, as the company keeps expanding its reach in the continent (targeting Brazil in the meantime).
Shaking up the Argentinean airline industry
According to a report by Bloomberg, back in July, 2018, the Argentinean government announced it will curb restrictions on minimum domestic airfares, allowing airlines to drop prices freely for domestic services starting August 15, 2018.
The move comes in an effort to boost tourism and rouse the country’s airline industry, giving routes to new players. President Mauricio Macri’s administration dropped the price ceilings to attract more international carriers.
“Argentina was one of the most expensive countries to fly in the region,” said Transport Minister Guillermo Dietrich. The new rule “offers a lot more opportunities for many people to fly.” According to him, removing the price floor will lead to rising passenger numbers for all airlines.
Previous governments kept the price ceilings in place to protect the state-owned carrier Aerolineas Argentinas, the country’s largest airline and its flag carrier. Brought back from the brink of disappearing by being repossessed by the government in 2008, Aerolineas Argentinas enjoyed protected competition conditions until 2016, Airline Geeks reminds.
The change in airfare regulations, hence, is definitely good news for travelers, but could be controversial for airlines, particularly Argentina’s national carrier. As Condé Nast Traveler writes, labor unions fear the move could lead to job losses at Aerolineas Argentinas, which may struggle to compete with low-cost carriers.
Meanwhile, new low-cost operators celebrated the Argentinean government‘s decision: “it is a good call, good for the carriers, but most of all, for the 93 percent of Argentinians who hasn’t flown yet,” the country’s first (and only, for now) low-cost airline Flybondi stated.
“We created this company because we think Argentina needs a more inclusive market that creates conditions for those that do not choose airplanes as a mean of transportation due to the expensive fares,” the statement concludes, according to Airline Geeks.
Another low-cost carrier, Norwegian Air Shuttle, also praised the decision to remove the price floor: “This measure will contribute in a decisive way to boost the development of the commercial air sector in Argentina,” CEO of Norwegian Air Argentina Ole Christian Melhus was quoted as saying by Bloomberg.
According to Melhus, not only is the decision „appropriate“ for the development of commercial aviation in Argentina, he says his company is „convinced“ that all airlines will benefit from a dynamic market, Airline Geeks reports.
Norwegian Air and Flybondi were among those who had criticized the price floors in the past. The removal of the price floors could break the dominance and the duopoly of Aerolineas Argentinas and Chilean LATAM Airlines in the Argentinean domestic market, being the two leading airlines in South America.
The new normal in Argentinean skies
The Argentinean government‘s move to no longer set minimum prices for domestic airfares means that the airline market will be able to sell tickets well below the existing price floors that were imposed back in 1987, Airline Geeks explains.
Let us take a look back: after a major revision in 1989, airfares in Argentina were allowed to flow practically without governmental intervention, but that resulted in the market being sucked into a price war between private companies and the good old Aerolineas Argentinas.
After a deadly crash in 1999, price controls re-emerged: price floors were updated regularly following inflation and local currency devaluation. The same circumstances today may have inspired President Macri’s decision: the move comes amid declining purchasing power for Argentines since the peso lost 35% of its value this year, Bloomberg indicates.
So here we are today: $16 ticket for a flight is the new reality in the Argentinean airline industry, compared to the times when airlines were required to charge passengers a minimum of $30-35 per leg for round-trip domestic flights, Airline Geeks reports.
For instance, as Condé Nast Traveler noticed, the first to join the race, since the government announced it will be removing price floors, was Aerolineas Argentinas, which advertised flights for $18.20 (499 pesos) on August 1, 2018, and saw its website crash as a result.
FlyBondi advertised flights as low as about $7 (199 pesos) for round-trip around the country, those were soon sold out as well. By the way, the new airfare policy applies only to round-trips and travelers must purchase their flight tickets 30 days in advance.
LCCs start to make inroads in the market
According to Bloomberg, several LCCs have already jetted off to take the opportunity to operate in Argentina. Home-based Flybondi, which started operating in January 2018, is planning to begin international flights this October. Another young airline, Chilean ultra-low-cost JetSmart, which began flights in July 2017, should start flying in Argentina by this December and plans to launch domestic service by mid-2019. It is currently seeking to obtain an air operator’s certificate (AOC) in Argentina, Flight Global reports.
And then we have Norwegian Air Shuttle, the sixth largest low-cost carrier in the world that is putting fear into full-service carriers for its ever expanding long-haul operations, which now include… Argentina. Norwegian announced its plans for a new division in the South American country back in April 2017. It had set a date for the launch of its new subsidiary airline for August 2018, but has now pushed back the launch of operations until mid-October 2018, Aviation Week writes.
New arrival: Norwegian Air Argentina
Norwegian Air Argentina (NAA) CEO announced on September 4, 2018, his airline will launch operations on October 16, 2018, from its hub, Buenos Aires Aeroparque Jorge Newbery Airport (AEP), 40km north of what is the country’s main international gateway and what will also be NAA’s main hub - Buenos Aires Ezeiza International Airport (EZE), - reports the Centre for Aviation.
Initially, the startup will operate its first routes between the Argentine capital Buenos Aires and cities Córdoba and Mendoza. As Condé Nast Traveler writes, there will be two daily flights between Buenos Aires and Córdoba, and one daily trip between Buenos Aires and the city of Mendoza. Additional routes to other cities, such as Iguazú, Neuquén, Bariloche and Salta, will be added later.
According to ATW Online, Norwegian Air Argentina presented its operational plans to the Argentinean government back in September 2017. By end of the year, the Argentine National Civil Aviation Administration (ANAC) authorized the carrier to fly 153 routes from the country, reports the Centre for Aviation. These include 73 domestic and 80 international routes. In January 2018, the startup airline received its AOC.
According to Norwegian Air Argentina’s CEO, the airline commenced bookings for domestic services on August 4, 2018, the Centre for Aviation writes. “The start of our sales and early start-up of operations are our biggest milestone since the founding of Norwegian Air Argentina,” CEO Melhus was quoted as saying by ATW Online. “Argentina has enormous potential for aviation development and a more integrated economy.”
As of September 4, 2018, NAA began selling tickets for in-country flights in Argentina (to begin on October 16) starting at $18. Bloomberg reports that the new carrier is offering round-trip flights for $18 (699 pesos) between Buenos Aires and Córdoba, and for $25 (999 pesos) for Buenos Aires-Bariloche flights.
The company is pushing for its low-cost flights to stand out in the middle of a currency rout in Argentina, and is expecting that a weaker peso will attract foreigners, while recession in the country will boost domestic travel. "There has been a very good response in the first hours of the sale," said Melhus. "Inflation and the weak peso are both a concern, but our fares are so much lower than the legacy carriers, that they’ll want to travel with us."
As for its fleet, on the initial routes, the airline will commence flights on one Boeing 737-800 NG aircraft, configured with 189 single cabin seats. But, according to ATW Online, NAA plans are far greater than that. The airline intends to operate between 10 and 15 aircraft on 246 flights per week by the end of its first year of operations, hoping to carry up to 2.2 million passengers. In 10 years, it expects to have 70 aircraft in its fleet, serve over 100 routes, and transport over 12 million passengers.
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