Charting a Successful Future for Latin America

The International Air Transport Association (IATA) urged governments in Latin America and the Caribbean region (Latin America) to take full advantage of the connectivity provided by aviation in order to chart a more successful future for the region.

"Latin America is ripe with possibilities. It has a dynamic airline industry that has embraced cross-border consolidation to boost efficiency and competitiveness and deliver more value to customers. And it has a geography that is particularly reliant on air transport," said Tony Tyler, IATA’s Director General and CEO in the opening address of the Wings of Change conference in Santiago, Chile.

The economic and social benefits of a successful aviation sector are clear—some 4.6 million jobs and $107 billion in GDP in Latin America. But many governments in the region are pursuing policies which treat the industry as a luxury—or worse as a pariah to be constrained—rather than as a catalyst for economic growth. "While some countries in the region—such as Chile and Panama—recognize the value of aviation, others are erecting physical and financial barriers to success, ignoring the lessons of places like South Korea, the Gulf or Singapore, which have placed aviation connectivity at the core of their development plans," Tyler said.

"Alignment with global standards and practices at the policy and practical level is a key prerequisite for aviation success. It creates the best environment for a healthy, vibrant airline system that can serve as a catalyst for economic development. Of course, there is no one-size-fits-all formula for aviation success. But there are firmly established principles—such as those enshrined in the Chicago Convention—that have stood the test of time. Scheduled commercial aviation is 100 years old this year. The Chicago Convention has guided the industry through the important work of the International Civil Aviation Organization (ICAO) for 70 of those years," said Tyler.

Tyler highlighted the top three priorities for Latin American governments to focus on in order for aviation to reach its full potential in the region. They are:

• Taxes and Charges

• Infrastructure

• Regulation

Taxes and Charges

A number of Latin American states apply VAT and other taxes on jet fuel for international flights, which deviates from global standards and is in conflict with the Chicago Convention and ICAO principles. On average, fuel cost in the region is around 14% higher than the global average. Brazil is an extreme example with fuel costing some 17% more than the global average.

Higher than average costs for fuel and other expenses hurt Latin America’s competitiveness and limit its economic prospects. "The World Economic Forum’s Travel and Tourism Competitiveness Report shows that Brazil ranks 118 out of 140 countries in terms of the competitiveness of its ticket taxes and airport charges. Colombia is 125. Venezuela and Peru are almost at the bottom at 134 and 135, respectively. High fees and charges impact a country’s attractiveness as a destination and its competitiveness as an exporter," said Tyler.

Tyler highlighted the unacceptable situation in Venezuela where the government is blocking the repatriation of almost $3.8 billion of airline revenues from ticket sales. "This is not the government’s money—it is money the airlines earned by providing air transportation to the citizens of Venezuela. Airlines are committed to serving the Venezuelan market but they cannot sustain operations if they can’t get paid for the services they provide," said Tyler.

Within the past year, 11 airlines operating in Venezuela have reduced operations between 15% and 78% and a few have ceased flying altogether. "The Venezuelan government recently has made commitments to allow the airlines to repatriate their funds. Now the government needs to follow through on those commitments by releasing the airlines’ money and at fair exchange rates," said Tyler.

Infrastructure

Governments across Latin America are embracing airport concessions and privatizations to speed-up infrastructure development. Previous privatizations in the region raised costs for air travel without any positive impact on efficiency or capacity. Global standards can help ensure that such severe mistakes are not repeated.

"It’s no secret that a lack of airport capacity is widespread across the region. In fact, only two economies, Panama and Barbados, rank among the top 35 countries for the quality of their air transport infrastructure according to the World Economic Forum. Creative ways to finance airport development are always welcome, provided they align with ICAO’s policies on charges which make clear that States are ultimately responsible for the economic oversight of commercialized or privatized airports. They must ensure that key charging principles of non-discrimination, cost-relatedness, transparency and consultation with users are followed," said Tyler.

Building infrastructure is not an overnight solution to capacity issues. Where capacity is scarce, it needs to be managed according to global standards until permanent solutions are found.

The global standard to manage airport capacity is the Worldwide Slot Guidelines (WSG) which ensures consistent practices. Because some 165 airports use the WSG, any deviation or local rules can cause disruptions. "We are concerned to see some regional governments tinkering with slot regulations in the misguided hope of extracting additional capacity from congested airport infrastructure. An airline operating from Sao Paulo to London needs a consistent set of rules at both ends of the route," said Tyler. 

Regulation

The global standard approach also is a good model for other areas of commercial regulation—including passenger rights. Already some 50 countries have implemented passenger rights regimes including 11 in Latin America. And what has resulted is a mess of complex, conflicting and unmanageable rules. "Creating a patchwork quilt of overlapping and contradictory rules is not the way to chart a successful course, and ICAO Member States at the 38th Assembly last autumn recognized that the glut of passenger rights regimes is not creating value," said Tyler.
Instead, Governments need to:

• Recognize that airlines want to get their passengers to their destinations with their bags, on time, all the time;
• Understand that we operate in a highly competitive industry in which customers can and do vote with their wallets;
• Seek industry input and conduct a rigorous cost-benefit analysis before considering new commercial regulations;

• Where global standards exist, use them.

"The airline industry is highly competitive and no airline wants to disappoint its passengers. Regulations should recognize these facts. States need to address the underlying causes of many flight delays and cancellations by investing in airport and air traffic management infrastructure," said Tyler.