(Bloomberg) — Chile’s JetSMART Airlines SpA is increasing its fleet of planes in Argentina as President Javier Milei seeks to deregulate the aviation industry and dismantle the flagship airline’s dominance in the domestic market.
The low-cost carrier, backed by Bill Franke’s Indigo Partners LLC and American Airlines Group Inc., has invested at least $160 million in Argentina this year, including adding two more planes to its fleet operating domestic routes, Chief Executive Officer Estuardo Ortiz said in an interview. In total, JetSMART has 10 of its 41 planes operating in Argentina.
Ortiz praised Milei for revamping an industry fraught with labor strikes and high operating costs that often result in losses on the bottom line. But the executive made clear JetSMART isn’t interested in buying state-owned Aerolineas Argentinas SA, which Milei is trying to privatize. Instead, Ortiz expects JetSMART to increase its offering of flights and seats during the South American summer.
“Our secret is keeping the business simple and staying focused on our airline. M&A doesn’t involve those goals,” Ortiz said. “The government has taken the correct approach. It is a market that has been badly distorted for many years.”
Ortiz is part of a larger wave of cautious corporate optimism about Milei’s overhaul of South America’s second-largest economy. In aviation, government officials recently made rule changes to allow airlines, like JetSMART, with planes registered abroad to operate flights within its borders.
Ortiz emphasized that deregulation push by the Milei administration as a reason for its increased presence in Argentina.
“In terms of regulations, Argentina was far behind,” Ortiz said. “They’ve put their foot on the accelerator and they’re catching up with the rest. And at the pace they’re going, they’re going to be the pioneer and probably the leader and example of airspace regulation in South America.”
Still, the executive stares down a business landscape that’s largely monopolized, hammered by recession and scarred from a pandemic that left carriers reeling across the region. Latam Airlines Group SA left Argentina in 2020 after 15 years in the country, citing labor conflicts. JetSMART itself took over the subsidiary of Norwegian Air after the European low-cost operator struggled to become profitable in the country amid volatile currency swings.
Airlines in particular face massive challenges handling powerful labor unions as air travel in Argentina is routinely interrupted by strikes. Two work stoppages by different unions just this week led to hundreds of cancelled flights on Wednesday and a baggage claim nightmare on Monday.
It’s hardly a surprise that no private airline has publicly expressed interest in buying Aerolineas, as the company is known locally. Another option on the table for the government is to handover the airline’s operations to its employees.
The flagship carrier towers over private airlines. In the nine months through September of this year, Aerolineas operated 66% of the country’s national routes, while JetSMART ranked third with 8%, behind Flybondi at 15%, according to data from Argentina’s Civil Aviation Authority.
Despite its grip on domestic airspace, Aerolineas incurs hundreds of millions in losses almost every year. During the first half of 2024, the business recorded an operating deficit of 264.5 billion pesos ($267.6 million) while taking on 374.5 billion pesos in extra debt over the same span, according to the text of a bill in Congress to privatize the airline.
The state airline disputes those figures, arguing it’s only $79 million in the red between January and July 2024. The numbers in the government bill don’t account for inflation or changes in the exchange rate, an Aerolineas spokesperson said by text message late Thursday.
–With assistance from Manuela Tobias and Mary Schlangenstein.
©2024 Bloomberg L.P.
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Publish date : 2024-11-01 01:18:00
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