In the space of two years, the ultra-low-cost airline acquired 23 aircraft and obtained air operator certificates (AOC) in Peru and Colombia. However, the absence of a regional “open skies” policy in Latin America and high taxes still loom as obstacles.
Eight years after its founding, JetSMART, the ultra-low-cost airline , has positioned itself as one of the emerging players in the Latin American market. It began operations as a startup , based in Santiago, Chile, in July 2016 and the following year, it undertook the inaugural flight between the Chilean capital and the city of Calama.
Today, the company covers eight South American countries, six operational bases, 55 domestic routes, 26 international routes and has air operator certificates (AOC) in Chile, Argentina, Peru and Colombia. Along the way, unforeseen events occurred such as the social outbreak in Chile in 2019, which suspended operations in the country for a few weeks. Subsequently, the COVID-19 pandemic limited flights in this market and completely suspended them in neighboring Argentina, from March to November 2020.
Within the framework of SMART Talks 2024, Estuardo Ortiz, CEO of the airline, remembers the pressure that the coronavirus placed on the company's development. “It was a gigantic challenge. For example, we had to evolve the booking window very quickly. Now from one day to the next, people bought a ticket and flew the next day. But due to the crisis, we had to reduce the fleet from 20 to 17 aircraft. We will stay like this until July 2022,” says the executive.
However, under the slogan of “making up for lost time,” the airline took on the challenge of incorporating 23 aircraft in the space of two years. Thus, with 40 aircraft at the end of July 2024, the company will exceed one million passengers in a single month for the first time, which is more than double what was achieved in July 2022 (490,000). These numbers were accompanied by expansion to important markets such as Peru (2022) and Colombia (2023). In the latter, 15 routes were reached, among them, a connection with the tourist island of San Andrés.
It was not an easy path: to the US$80 million investment was added the challenge of allocating financing to a continent, where regulations are unstable or poorly respected and therefore, permits to operate are difficult to agree on. Meanwhile, 13 airlines stopped operating in South America and LATAM Airlines, a giant in the sector, entered into a restructuring process to avoid bankruptcy.
“The market has been concentrating on fewer airlines. But this does not imply less competitive intensity. Lower costs and greater competitiveness had to be sought. I think the pandemic opened doors for us and we have taken advantage of them,” says Ortiz.
As for the investors who bet on JetSMART during this period, Indigo Partners stands out, known for its work with ultra-low-cost airlines , as well as American Airlines, which contributed to strengthening the capital structure and projection of the company. Under this line, the American airline became a minority shareholder in exchange for coordinating connections between flights from the United States and JetSMART routes at the regional level.
On the other hand, among the growth opportunities, Ortiz points out that the average annual trips in Latin America continues to be one of the lowest in the world. In fact, a study by the International Air Transport Association (IATA) reveals that currently, a Spaniard makes 4.56 air trips per year and a North American, 2.61, and a Latin American, only 0.65.
Of the eight countries where JetSMART operates, only Chile (1.21) exceeds the average of one annual trip. Finally, the study closes with two key facts: eight out of 10 South Americans have never traveled and, on average, Latin Americans only make one trip approximately every two years. Given this panorama, Ortiz believes that low-cost airlines can be a notable alternative in a sector with rates that are usually far from the daily budget of many citizens. The CEO estimates that between 15 and 20% of passengers on JetSMART flights have never been on a plane before.
But not only the purchasing power gap comes into play, but also the absence of a regional “open skies” policy ( Open Skies ). Although notable progress has been made, such as the bilateral air traffic agreement between Argentina and Brazil, similar measures have yet to be imitated in other countries.
“We could have a single air operator certificate (AOC) for South America. Because yes, we can operate in any market, but we still need a certificate for each country if we want to operate domestic flights. An open skies policy would allow a Colombian pilot to fly an aircraft in Argentina. Or an Argentine pilot could command an aircraft in Peru and not like today, where only local pilots can still operate,” Ortiz criticized.
THE DRAMA OF HIGH BOARDING RATES
Another major liability is the high cost of international shipping fees. The CEO of JetSMART assures that currently, it is not unusual for a passenger to pay US$ 1,000 to fly on routes that connect South American countries. As if that were not enough, an additional 10% must be paid in boarding fees, which raised the price of the ticket to US$1,100.
“When we analyze what a passenger pays, the total of an international ticket often ends up being 70, 60 or 50% taxes. It is difficult to imagine how an industry could have developed like this and therefore, it is understandable why the number of trips generated within South America is so limited. In Europe, one flies from Spain to Germany and counts as a domestic flight. This is more serious in our region, where the average GDP per capita is lower,” laments Ortiz.
It should be noted that in the years before the pandemic, certain progress was made: Brazil eliminated the US$18 tax on international passengers in 2019, while Chile lowered its tax from US$30 to US$26 a year before. Instead, Argentina took the opposite route in 2021: it raised the rate from US$51 to US$57 per passenger.
For his part, Ortiz affirmed that high boarding rates persist in the Andean countries. "When we try to open a route that does not exist between two cities in Peru and Colombia, which would make sense because they are sufficiently large towns, the fact that a passenger pays US$ 120 or US$ 150 per ticket, already leaves out 60 or 70 % of the population. A family of five cannot pay US$500 or US$700 just for boarding. Between VAT and other taxes, the majority of the population is excluded. I think that is the biggest challenge we must face as a low-cost airline ,” declared the manager for AméricaEconomía .
