September 7th, 2020

Colombian airlines have been through tough times, as COVID-19 made the world come to an almost full stop. Airlines worldwide halted passenger operations and Colombians were not the exception.

After a few months under what seemed like an endless lockdown, some major Latin American carriers went bankrupt, i.e Latam, Avianca, Aeromexico, and some others that were struggling before the pandemic went extinct, like TAME. In the search for revenue, a few operators performed humanitarian and cargo flights with scarce revenues.

Now, despite the virus still among us, the Colombian government has decided to resume commercial operations in selected domestic routes. Local airlines, airports, and personnel have made an enormous effort to withstand the crisis and resume operations. All major operators, Avianca, Satena, Viva Air, EasyFly, Latam, and Wingo, are back in business with limited activity and the road seems still pretty long.

Colombian Air Traffic Context

Colombia’s passenger air traffic dropped to zero drastically after the borders closure and lockdown measures taken on March 25th. 

Cargo operations were not banned and according to the figures published by the Colombian CAA (UAEAC), this sector experienced an average of 22% decrease between March and June compared to February, but showed a significant recovery in August. The passenger traffic landscape is different since the operations were restricted down to humanitarian flights and special operations only, showing that the traffic barely reached an average of 17.500 passengers per month between April and June compared to an average of 3 million passengers per month reported last year. The CAA has not published traffic figures for August and September yet.

Searching for a balance between public health and economy, the government has relaxed some restrictions, allowing domestic air operations starting from September the 1st. Initially, the government has approved some domestic routes and will extend or restrict more routes based on the spread behavior.

Financial Environment

The financial situation is not promising for any of the Colombian operators. It is well known that Avianca has been through financial difficulties, even before the pandemic. In response, the Colombian government has offered an 18 month-loan for up to 370 million USD, which is yet to be approved by the judge overseeing the bankruptcy case in the N.Y court.

Viva Air, on the other hand, is negotiating a 25 million USD loan with the government and expressed in the media its disappointment, arguing that the government is giving “special treatment” to Avianca and expressing that the amounts are not proportional to the expected fleet size post-pandemic. It is worth mentioning that Viva has not filed for bankruptcy.

Regarding Latam, it filed for bankruptcy and after exploring financing options with the government, opted for other private financing options. 

On the regional segment, Easyfly is under a “reorganization corporate plan” for insolvent companies with a total debt of around 60 Million USD while officially owned Satena has not filed for bankruptcy but has requested funds as well, having received government backings in the previous years for some 180 million USD as the airline continues to serve remote destinations in the country that do not provide adequate yields.

Ticket Pricing

Figure 4 shows the price behavior of each of the main Colombian air traffic routes. It is highlighted that the prices are in USD and for Viva Air and Latam, the ticket price does not include baggage, while Avianca does. No major changes are evidenced.

 Outlook

The word “Uncertainty” properly defines the outlook of the upcoming months, where not only the flight bans will determine the traffic volumes, but the purchasing power and the fear to fly. 

Published in Colombia’s presidential webpage, the country was expecting to receive 4.9 million non-resident visitors this year, which would have significantly contributed to the GDP. Therefore, the local economy is craving for an international opening. Under decree 569 issued last April, international flights were forbidden until November 30th, a decision that has not been officially changed to this date but that will have a great impact on one side of the health-economy balance. 

Stay tuned for more updates.