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Argentina could be seeing its first budget airline take off soon.

Numerous airlines — including Avianca, RyanAir, Flybondi, and, most recently, Norwegian — have announced they are eyeing Argentina as an untapped market where they could start providing low-cost flights. But while the investment promises have spurred excitement among travelers, successfully establishing a budget airline in the country will require jumping through lots of existing hurdles that have tripped up hopeful investors in the past.

The market is certainly there. Even though Argentina has one of Latin America’s largest middle classes, the country’s residents travel by air much less than their regional peers — only three out of 10 Argentines boarded a flight in 2015. This is significantly lower than Brazil and Colombia, where in the same year 100 million people (five of every ten) and 30 million people (six of every ten) traveled by plane, respectively.

Source: World Bank Development Indicators

Argentina is lagging behind not only in terms of number of people traveling by plane, but also in the growth of aviation over the past two decades. Since 1990, the number of airline passengers in Argentina has grown by only 4 percent a year, compared to 10 percent in Chile, and 7 percent in Brazil and Colombia.

Why such a low number of passengers? Well, cost is a huge factor in a country where long-haul luxury buses remain popular. According to the Aviation Price Index calculated by Kiwi.com, a travel agency, Argentina ranks 32nd out of 75 in terms of domestic flight prices. The index estimates that passengers in Argentina pay US$12.37 for every 100 kilometers of air travel, almost three times as much as Brazil. This estimate doesn’t take into account the extra fees charged to foreigners when flying domestically in Argentina, who may pay up to 70 percent more in airfare.

Source: Kiwi.com

So, why is flying so expensive in Argentina?

Lack of alternative airports



“One of the main barriers to low-cost airlines looking to come into Argentina is the lack of alternative airports that offer lower landing fees,” Santiago García Rúa, the former manager of institutional relations for Aerolíneas Argentinas, told The Bubble. “It’s not just the provinces that don’t have alternative airports — Buenos Aires doesn’t either. You just have Ezeiza and Aeroparque.”

This dynamic is partly due to a general lack of investment in airports over the past decades. Argentina ranks sixth in the world in terms of total number of airports and airfields in the country, according to data from the US Central Intelligence Agency that estimates there are a total of 161 paved runways. But only 38 of them are open to commercial flights — an automatic barrier for budget airlines.

“We inherited a completely underdeveloped sector, with deficiencies in infrastructure, brutal deficiencies in technology, and with pending transformations in airport terminals. Most airports haven’t seen any investment in more than 30 years,” Transport Minister Guillermo Dietrich said at a recent press conference.

Flybondi, for instance, is looking into the possibility of flying out of airports in El Palomar (Morón) and La Plata. However, none of these two airports have ever been open to commercial flights, and would need significant investments to be able to start welcoming passengers.

Near-monopoly in airport operations

Thirty-three out of the 38 commercial airports in the country are run by one company: Aeropuertos Argentina 2000 (AA2000). In 1998, AA2000 won a bid over the concession rights to run all the major airports in the country, including Ezeiza, Aeroparque, and the Córdoba, Mendoza, and Bariloche airports. In 2007, the concession was extended until 2028.

“The reason all these concessions were given to only one company is that the plan was for important airports such as the ones in Buenos Aires and Córdoba, which are in theory profitable, to subsidize other less-profitable airports,” says García Rúa.

However, AA2000’s near monopoly of airport management gives the company full discretion over what to charge airlines for landing fees.

“It’s just not sustainable because there are no incentives to lower fees. Brazil, for instance, is currently privatizing its airports but the concessions are given out individually, so there is more competition. If there isn’t a company interested in running a certain airport, then the local government takes over if it sees the airport as a need for the community,” he says.

Government restrictions

Even if an airline is able to manage its way around the existing restrictions, it will still have to adhere to prices imposed by the government. With the official objective of stabilizing the airline industry and ensuring its profitability after the 2001 economic crisis (although some argue it has been more about protecting state-owned Aerolíneas Argentinas), the government has been imposing price floors and ceilings for airfare since 2002.

President Mauricio Macri’s government removed maximum price restrictions earlier this year, but minimum prices remain in effect.

According to the United Nations Economic Commission for Latin America and the Caribbean (ECLAC), Argentina has one of the most tightly regulated airfare markets in the region, with minimum prices significantly higher than that of any of the country’s neighbors. For instance, Argentina’s price floor is 50 percent higher than Chile’s, and 100 percent higher than Peru’s.

Powerful unions



Last but not least, any airline that wants to set up in Argentina won’t just have to overcome institutional challenges, but also will have to learn how to negotiate with powerful sector unions. Only two weeks ago, the Airline Pilots Association (APLA) held a strike that stranded more than 20,000 passengers.

Because of their political power and leverage, pilots in Argentina are some of the highest paid in the world. A pilot for Aerolíneas Argentinas earns an average of AR$160,000 (US$10,533) a month, with peaks that can reach AR$250,000 (US$16,460), according to La Nación. In comparison, pilots in the United States earn an average US$7,456 a month, according to data from the U.S. Department of Labor.

Sources: Worldsalaries.org, US Department of Labor, La Nación

Even as they earn more, pilots in Argentina tend to fly fewer hours than their regional counterparts. A domestic pilot in Argentina flies an average of 48 hours a month, compared to 61 in Brazil, 64 in Chile, and 66 in Peru.

Despite these challenges though, low-cost airlines looking to enter the Argentine market are sounding optimistic.

“We believe we can operate around the minimum airfare prices for a while. And the way the peso is going, inflation will decrease those prices in real terms by 20 percent next year. Nonetheless, we believe that the minimum price floor will be removed by mid-2017 at the latest,” said Julián Cook, CEO of Flybondi in an interview with La Nación.

While the government has not yet committed to a concrete timeline to further reduce regulations, they have announced plans to revamp the country’s airport infrastructure. On September 21, the Transport Ministry announced an AR$22 billion (US$1.4 billion) plan to improve and expand the existing airport infrastructure. All this with the goal of doubling the number of airline passengers over the next four years.

Flybondi wants to be part of this growth and will formally request a government hearing to be granted permission to fly in Argentina in the next two weeks. The company estimates an initial investments of US$75 million.

“We are Flybondi and we are convinced that flying can be cheap, simple, and fun,” notes the company’s website. Yes, flying can be fun. We’ll see about the other two.