Avianca to test whether a legacy airline can become a low-cost carrier
Newly restructured Avianca has a robust vision for growth for the next few years. The airline aims to launch as many as 200 new routes by 2023, grow its passenger fleet by a quarter, and compete vigorously with rapidly expanding Latin American low-cost carriers. But that vision requires Avianca to compete more effectively. To that, end the Bogotá-based carrier slashed expenses through its US Chapter 11 restructuring and is adding roughly 17-20 percent more seats to its Airbus A320 family jets — A320s go to 176 seats from 150 — to achieve the magic revenue and cost mix that drives higher profits and margins. Avianca CEO Adrian Neuhauser said Thursday that unit costs per kilometer excluding fuel will be, at 3.4 cents, 38% lower in 2023 than they were in 2019. To put that in perspective, that’s better than both Azul and Gol in Q3, which reported unit costs excluding fuel of 3.5 cents and 4.6 cents, respectively. But the question is how that compares to the new crop of LCCs that, according to Neuhauser, are expected to dominate Latin American aviation by the middle of the decade. JetSmart, Viva Aerobus, Viva Air Colombia, and Volaris are all expanding in Avianca’s territory. Viva Air competes directly with Avianca in the Colombian domestic market, though during the pandemic it pivoted to more of a hub-and-spoke network centered on Medellin, which is a destination that has long been secondary to Bogotá for the legacy carrier. And JetSmart, Viva Aerobus, and Volaris are all — for now — encroaching by expanding their presence on regional routes into Colombia. The question facing Avianca is whether its new cost structure, plus the revenue benefits of its fleet densification, are enough to compete with LCCs. Some industry analysts have said that, even with its Chapter 11 cuts, Avianca still has more full-time equivalent employees per aircraft than budget carriers. Volaris, the only publicly listed Latin American LCC, reported unit costs per mile excluding fuel of 4.09 cents — while not directly comparable to Avianca’s number, the metric would be lower if stated in kilometers — in the third quarter. The Mexican discounter’s numbers include its subsidiaries in Costa Rica and El Salvador.<br/>
https://portal.staralliance.com/cms/news/hot-topics/2021-12-10/star/avianca-to-test-whether-a-legacy-airline-can-become-a-low-cost-carrier
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Avianca to test whether a legacy airline can become a low-cost carrier
Newly restructured Avianca has a robust vision for growth for the next few years. The airline aims to launch as many as 200 new routes by 2023, grow its passenger fleet by a quarter, and compete vigorously with rapidly expanding Latin American low-cost carriers. But that vision requires Avianca to compete more effectively. To that, end the Bogotá-based carrier slashed expenses through its US Chapter 11 restructuring and is adding roughly 17-20 percent more seats to its Airbus A320 family jets — A320s go to 176 seats from 150 — to achieve the magic revenue and cost mix that drives higher profits and margins. Avianca CEO Adrian Neuhauser said Thursday that unit costs per kilometer excluding fuel will be, at 3.4 cents, 38% lower in 2023 than they were in 2019. To put that in perspective, that’s better than both Azul and Gol in Q3, which reported unit costs excluding fuel of 3.5 cents and 4.6 cents, respectively. But the question is how that compares to the new crop of LCCs that, according to Neuhauser, are expected to dominate Latin American aviation by the middle of the decade. JetSmart, Viva Aerobus, Viva Air Colombia, and Volaris are all expanding in Avianca’s territory. Viva Air competes directly with Avianca in the Colombian domestic market, though during the pandemic it pivoted to more of a hub-and-spoke network centered on Medellin, which is a destination that has long been secondary to Bogotá for the legacy carrier. And JetSmart, Viva Aerobus, and Volaris are all — for now — encroaching by expanding their presence on regional routes into Colombia. The question facing Avianca is whether its new cost structure, plus the revenue benefits of its fleet densification, are enough to compete with LCCs. Some industry analysts have said that, even with its Chapter 11 cuts, Avianca still has more full-time equivalent employees per aircraft than budget carriers. Volaris, the only publicly listed Latin American LCC, reported unit costs per mile excluding fuel of 4.09 cents — while not directly comparable to Avianca’s number, the metric would be lower if stated in kilometers — in the third quarter. The Mexican discounter’s numbers include its subsidiaries in Costa Rica and El Salvador.<br/>
