LATIN AMERICA

RECOVERS

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AT A GLANCE

  • The economic recovery maintaints its slow pace while traffic growth presents positive results;
  • Brazil’s structural reforms are under way and may drive massive investments in the country;
  • Long term growth relies on some key factors that, once addressed, would result in huge opportunities for the region.

ECONOMIC & TRAFFIC PERFORMANCE

Despite the fact that important countries in the region have major economic difficulties, in general the region continues to present some subtle signs of improving economic conditions. The IHS Markit forecasts that the region’s GDP will grow around 1.7% in 2019. Over the next 20 years, the CAGR is expected to remain subdued at 2.6%.

In terms of traffic, the region is expected to grow around 4.7% in 2019 and 5.1% during the next 20 years.

LATIN AMERICA RECOVERING
THE ECONOMIC GROWTH

Source: IHS Markit

BRAZIL’S REFORMS ON THE WAY

In Brazil, the region’s largest economy, Pension Reform is being discussed at the Congress and could represent up to ~U$300 billion of savings for the Brazilian government over the next 10 years. These reforms may encourage foreign investors, since it would promote greater financial stability and business confidence in the long term.

The combination of higher government spending power and a stronger appeal for foreign investors means that the country will have resources to apply internally, promoting development.

So far, infrastructure has been one of the largest bottlenecks restraining growth – as it is a barrier to the Brazilian competitiveness, and one of the biggest opportunities for improvement and return on investment. In this sense, investments in this area are already becoming very attractive, especially regarding airports and the air transportation system.

Besides this Federal initiative, tax reliefs on jet fuel promoted by some states in Brazil, as well as the Government’s decision to grant all Brazilian airports to the private sector by 2022 will help the country reach a new phase of development, based on a market-driven platform.

SUSTAINABLE GROWTH RELIES ON KEY-FACTORS

Taking the benchmark of the United States, the region still has a long way to go until it reaches maturity, representing a tremendous opportunity for growth.

STILL A LONG WAY TO GO TO REACH
MATURE LEVEL

Source: IHS Markit, Sabre, Embraer Analysis

Meanwhile, there are some key-factors that have restricted the full potential of the region. Some of these are:

  • Lack of infrastructure investment: ALTA estimates that if market demand continues to grow at the current rate, there will be a gap of around US$53 billion in aviation infrastructure to cope with passenger demand. Even today, some of the most important airports are reaching their capacity limit. Mexico City is the most critical, but Bogota and some of the main airports in Brazil have similar problems.
  • Fuel: Fuel costs in Latin America are among the highest in the world. New-generation, more efficient aircraft are important for helping mitigate high prices.

LATIN AMERICA ROUTE
CONCENTRATION

Source: Sabre

  • Route Concentration: Airlines operate mainly on trunk routes, often because the aircraft capacity is concentrated on large narrowbodies. Players compete fiercely for market share on core city pairs, impacting everyone’s bottom line. In many countries, especially in Brazil, mid-sized cities are developing faster, both in terms of population and economic growth. Airlines such as Azul and Aeromexico are starting to explore these opportunities.