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Latin America’s lost momentum

Overcapacity and sinking yields are impacting the region

Just two years, LAtin America was being hailed as a hotspot for economic growth. Ian Putzger reports on what's gone wrong


In 2014, Brazil was gearing up for the football World Cup, an event that was supposed to be a celebration of the country’s emergence in recent years as an economic powerhouse and Latin America’s largest economy. Two years later, as the country prepares for the next mega-event – the summer Olympics in Rio – the mood of celebration has given way to an atmosphere of gloom. Mired in political scandal and hit by an economic slump triggered by the collapse of global demand for commodities, Brazil is reeling, while the rest of the region also struggles with even bleaker economic circumstances and weakened domestic currencies that are sapping demand for imports.


The skies over the region have turned dark with overcapacity and sinking yields. International freighter operators are no longer flocking to an area that had seemed immune to these ills.


LATAM Cargo, the region’s leading cargo carrier, went from the expansion drive of its all-cargo fleet in order to keep up with growth, to a painful contraction. Four of its Boeing 767 freighters, as well as one Boeing 777 cargo aircraft, have been taken out of operation, which is now geared more towards feeding the carrier’s bellyhold fleet.


LATAM Cargo Chief Executive Officer, Cristian Ureta, points to IATA figures, which show decreasing load factors and yields in Latin America. While the situation is most pronounced in Brazil, drops in local currencies, which have taken their toll on imports, have also hit the other countries in the region. Here and there the weaker currencies have spurred exports to markets beyond Latin America, but the inbound yields are crucial for the carriers.


“Without enough cargo into the region from Europe and the US, the situation is bad,” he comments. He adds that, for LATAM and other carriers, business has turned into a juggling act. “You have to balance your traffic and routes. You have to combine different routes, different commodities; that’s our main challenge right now,” he says.


Other carriers have curtailed their freighter activities in the region as well. Lufthansa Cargo stopped its twice-weekly McDonnell Douglas MD-11F run from Ecuador and Colombia to Frankfurt via Puerto Rico in mid-March.


As in other parts of the world, the plight of all-cargo operators has been aggravated by a continuing rise in bellyhold capacity, as passenger demand continues to outstrip growth in cargo. Ureta points out that, in addition to the traditional trunk routes, new operations (such as flights from Chicago and Dallas/Fort Worth in the US) have proliferated.


“There is too much capacity in and out, mostly in the larger markets, especially Brazil,” comments Carmen Taylor, Managing Director, Latin America at American Airlines Cargo. “Additional capacity is driving yields down.”


In some markets the drive has gone into reverse, as even relatively new passenger services have been scrapped. American has cancelled its Miami-Curitiba flight, as well as Miami-Porto Alegre. On the cargo side, the airline has concentrated more on flows between the region and intercontinental markets in Asia and Europe.


Taylor notes that some airports in the region have stepped up their game, despite the economic headwinds. “I am impressed with investment in dedicated pharma cooler facilities in the region,” she says, adding that airport liberalisation in Brazil has led to more proactive operators willing to invest, seeking a dialogue with carriers in order to develop more business.  >>

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