After the measures dictated by the Ministry of Economy were announced, airlines operating in Argentina have been racing since last night to adjust prices and reflect changes in the tax burden on airfares.
Both JetSMART and LATAM issued statements in which they reported that they are working on the reservation systems to «adjust the new exchange rate and the update of associated taxes» and that there could be «delays» or «intermittence» in the web purchase process.
The websites of Aerolíneas Argentinas and Flybondi do not currently have any notices regarding this. On the flag carrier’s page, some random searches show that the availability of the lowest fare class is very low (we cannot affirm it is null, but in the simulations, we could not find prices in Promo Fare), but this could be due to genuine demand or a self-protection measure.
Offering Base, Flex, or Business/Premium Economy classes allows purchasing tickets for those who need them regardless of price, maintaining some margin to absorb the sharp movement of the exchange rate.
One Dollar, 800 Pesos: double the costs, double the prices?
While there have been no official announcements from any of the operators, the transfer to prices of the new official exchange rate is inevitable. In an industry where most costs are calculated – and paid – in dollars and tickets are sold in Argentine pesos, the ability to cover the former is, as of yesterday, significantly less.
The costs of fuel, leasing, maintenance, and training, among others, were reached by a favorable measure: Minister Caputo announced yesterday the elimination of SIRASE, which allowed operators – through that request – to access the official exchange rate for the payment of supplies and services.
The discretion of the approval circuit of the instrument has more than once generated complaints and claims as it caused various aviation operators in the country -both commercial, executive, general, and sport aviation- to face delays in the delivery of airplanes, spare parts, supplies, and pilot training.
With SIRASE eliminated, operators will be able to access the official dollar without restrictions, which will reduce frictions in operation. But the cost of free access is paying 800 pesos for each dollar when 24 hours ago they struggled to access an exchange rate of $400. If the issue is an accessible dollar at 800 or an impossible one at 400, it is clear that the balance must be closer to the real than the nominal.
There are still no specifics on what percentage the ticket prices will be updated, but industry sources commented that they expect it to be significant, beyond the gradual increases that had been accompanying the inflationary pace.
Recovery completed, growth slows down
The Argentine aero-commercial system showed a recovery pace in the post-pandemic that had allowed surpassing the number of passengers transported both domestically – driven by the Previaje program, which implied strong subsidies to the tourist activity – and internationally, a threshold that was finally surpassed in November of this year, according to ANAC statistics.
The economic measures will have a full impact on a sector of the population that had found in the airplane an accessible means of transport, especially in the distance/time/mode of transport relationship. An airplane ticket competed on par with a long-distance bus ticket.
The price distortion allows today, after the announcements, to buy a ticket on the Buenos Aires- Bariloche route for the second half of April with a checked 15 kg suitcase for 73,000 pesos with Flybondi and 83,000 with Aerolíneas Argentinas. For the reader, this may seem like a lot of money, or relatively little; and there lies the problem.
There is no reference value. For the same route, a bus trip costs 60,000 pesos and a car transfer from Campana to Ezeiza (104.7km) is around 54,000. The only clear thing is that the cost for the passenger will be higher, which will make access more difficult.
This sector – because there is a part of the population that never traveled by plane and another part that will continue to travel, even with the expected increase – had been the engine of the industry’s growth: the first-time traveler. This traveler was the target of the Low Cost companies operating in the country, and the outlook that was gray is now a bit darker.
Already in advance, JetSMART decided to transfer an Airbus A320ceo from the Argentine subsidiary to Peru, a market with similar movement but where making profits from the operation is significantly easier. Flybondi is outfitting its 16th plane, while looking to expand its operation in Brazil.
Perhaps the Brazilian market – not exempt from its particular difficulties and challenges – is a reassurance to have a freedom similar to that enjoyed by the subsidiaries of Indigo Partners in South America and for which Argentina is just another variable. LATAM, Avianca (stronger after partnering with GOL and Aerolineas Argentinas within the Abra umbrella), and SKY also have in this multiplicity a margin that today seems indispensable.
Aerolíneas Argentinas will have to do what it has been doing: focus on management. It is unlikely that there will be major changes in its situation in the immediate future, so it will have to ensure the continuity of the operation. Within this continuity are the plans for fleet renewal and the provision of services to third parties.
Fleet renewal as an instrument for long-term cost reduction – higher leasing cost but lower operating cost – and services to third parties as a generator of genuine income. Maintenance and simulators – CEFEPRA, as a business unit, generates profits – can lend a hand in the complex situation to come, with the inevitable slowdown in demand.
No operator is exempt from the shock: the devaluation/inflation will generate a sharp transfer to prices, which will limit access to the aero-commercial market. Apart from these issues, it is unavoidable to conclude that a more real exchange rate – and therefore, ticket prices closer to that reality – will allow companies to have greater predictability over the medium and long term, always assuming that these measures and subsequent ones work.
We have been Argentine long enough to know that this «effort» looks very much like others that have been asked with the same vehemence and the same conviction that, after another period of difficulties, this time it will work. No one escapes the maxim that the economy is, above all, an act of faith.
Hours after the announcements, the industry prepares for an emergency landing. And it hopes, with luck, to continue flying.
