2012 Marks Big Changes to Airlines in Ecuador
February 6, 2012 § Leave a comment
2012 is shaping up as a transition year for the national aviation industry in Ecuador, after the rule change since last January.
The starting point was the elimination of air fuel subsidy. Companies started to pay the real value of fuel, which now fluctuates with the price of a barrel of crude. Airlines were previously paying $ 1.24 per gallon now must pay around $ 3.04. Prior to January, Ecuador was subsidizing 60% of actual value of fuel.
The first effect of this decision was the rising price of widespread airfare on all routes, even those which kept the fuel subsidy. Increases were recorded between 15% and 40%, with greatest impact on flights to and from the Galapagos Islands.
Higher prices and screening of a fall in passenger demand forced a reduction of costs in the airline LAN, which decided to cut jobs.
On 25 Jan. 60 workers were laid-off, since the structure of the company was over sized for the new market reality. That same day also announced the reduction of frequencies on routes Quito-Guayaquil and Quito-Cuenca.
The decision to maintain a subsidy of 40% only at airports managed by the State, was a direct payment to the state company TAME, which is the only flying at Loja, Lago Agrio (Sucumbios), Esmeraldas, Santa Rosa (Machala ) and Tulcán (Carchi), airports managed by the Directorate General of Civil Aviation (DGCA).
TAME announced an increase of $ 6 via these routes, because in any case had to pay more for fuel.
But that decision was cast down by the government. The President, who said that the poor do not fly in an airplane, ordered the public company reducing prices. The argument was that to promote the use of state-owned airports need lower prices, which affect not TAME because they have to recoup investments in three new aircraft, which were paid with public funds.
The company complied with the order and the price of passage on the route Quito-Santa Rosa, for example, fell by USD $34.4.
State aid for public companies, however, causes distortions in the market.
Guillermo Bernal, president of the National Airline Association (Adena), said TAME has to subsist on efficiency. “You should not expect the State to subsidize the losses at the end of the year. So there is no competition.
And not to lose market share, companies are adjusting their business model, which may include a change in the airline fleet, says Bernal.
The Executive Order eliminated the air fuel subsidy lifted the airline demands had access to that benefit. Among them, having a modern fleet, ie the year of manufacture of the aircraft is later than 1990.
To comply with these regulations, according to Bernal, companies invested about USD 1200 million. But as no such incentive, companies may see in older aircraft one way to reduce costs. In addition, the previous Decree stipulated that labor should be a national company for the benefit of the subsidy. It is no longer required the hiring of crew and national pilot, which opens the possibility of further layoffs.
The settings become a priority in a scenario of lower passenger demand. Travel agents say the sale of tickets for corporate executives has remained so far, but some of the people who travel for tourism have stopped.
To reverse this trend, airlines have launched promotions for two weeks, though less attractive than in the past. In 2011 being advertised tickets to and from Guayaquil and Cuenca for $ 48. Ahora la oferta es de USD 66. Now the offer is $ 66.
In recent weeks, following the fuel price increase, there was uncertainty for businesses. The question was repeated in the field: what will companies do to absorb the costs and regain profitability levels without affecting the volume of traffic?
That led to adjustments. Was transferred fuel cost to the user. Some companies have reduced staff, others have rearranged their frequencies and fares. This through the ‘Revenue Management’, a computer system to manage the sale of space on the plane.
The international comparative rate before and after removal of the subsidy has barely moved. This shows that before local airlines, selling tickets outside, were making more, but had subsidized fuel. Now the price is similar and unsubsidized.
In Ecuador there is no comprehensive aviation policy. What you need is laws that are made outside of policy. Hence, establishing agreements, agreements, airlines are allowed revenue. For example, when setting the fuel subsidy was said that one idea was to improve the national airline fleet. Now go away. This must be done gradually so that the impact is not strong on the user because the companies continue their same income levels and the user is who ends up footing the bill.
Two decisions of the national government
The grant will mean the Treasury $ 92 million. The State covers USD 1.80 per gallon. Airlines canceled until December 2011, USD 1.24. Since the elimination of subsidies, the airlines are charged USD 3.04.
In the binational meeting between Colombia and Ecuador, the aeronautical authorities discussed the possibility that the state airline TAME enter immediately to operate routes such as Caracas, Bogota and Quito.
To encourage the flow of passengers, the governments of Ecuador and Colombia decided that flights between the two countries are considered domestic. The authorities expect that the user could save $ 100.