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Concerns for Aerolíneas as Change in Regulation Removes Minimum Airfare Costs

By | [email protected] | July 4, 2018 2:52pm

Cronista DietrichThe Minister of Transport (Photo via Cronista)
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Until now, a law in Argentina established and enforced a “price floor” that ensured a minimum cost for any domestic flights. As such, local travel was often expensive, especially when compared to other international flights that only implied a marginally higher cost. In order to increase the number of tourists traveling within Argentina, on August 15th this floor will no longer apply to local flights. The measure will only work on flight bookings made at least 30 days in advance.

The new regulation was confirmed by the Transport Ministry via a press release, although the change will only be published at the end of the week. “The measure will ensure a decrease in prices for Argentines that want to fly within the country. Passengers will have more offers, with better prices,” said the Minister Guillermo Dietrich.

The Minister of Transport (Photo via Cronista)

 

Moreover, companies hope the measure will encourage people to book their tickets in advance, thus avoiding more empty seats on the planes itself, increasing their occupation (and hopefully, profitability). The government’s objective is to double the quantity of air passengers, that totaled 10 million in 2015, to 20 million in the near future.

The demand was made by the low-cost companies that were looking to settle in Argentina, or already on the market via alternative airports like El Palomar in Buenos Aires. For example, Flybondi already assured it would offer flights costing between 40 to 70 percent cheaper to what are available now.

DestinationBeforeAfter
Buenos Aires to CórdobaAR$ 1600AR$ 836 to $418
Buenos Aires to BarilocheAR$ 2476AR$ 1485 to 743
Buenos Aires to IguazúAR$ 1780AR$ 1068 to 534

 

Satistics are changing according to the seasons

Low-cost companies have been pushing for this measure for a while, and are more than happy to now increase their investment in Argentina. Norwegian Airlines for example, will in the very-near future start to operate in the country, and its CEO Christian Melhus has declared that “this measure will contribute in a decisive way to boost the development of the commercial air sector in Argentina.” Chilean company JetSmart is also planning to launch new connections in Argentina.

Bigger companies that are already quite well established in the country, will have to deal with the new measure which doesn’t favor their operations. Latam said to Clarin that such a floor doesn’t exist in any of the other markets in which it operates and therefore wouldn’t be difficult for the company to adapt. Low-cost companies are a “worldwide trend,” they added, and the airline plans to counter them by the addition of extra fees on some of their services, such as checked baggage as well as meals on board, to lower the base ticket costs.

However, the most protected company by the former price floor was undoubtedly Aerolíneas Argentinas, and the regulation could hurt the already-injured flagship carrier. Aerolíneas declared that although “they didn’t ask or push for the measure,” they would “adapt to it,” as “everything that is good for the passengers must be good for Aerolíneas Argentinas.” They mostly count on their “quality products with greater frequency and high punctuality” to compete with the new and cheaper companies.

 

Bus companies could be the most impacted by the new law (Photo via VoyHoy)


The floor wasn’t just made for Aerolíneas Argentinas, however. It was also in place to protect the bus-transport sector, which is still very much in use in Argentina, even for the 23-hour journey from Buenos Aires to down to Bariloche. Doing away with the price floor will create bigger competition within the industry. “We are concerned”
said to the press Néstor Carral, the President of the Argentine Chamber of People’s Vehicle Transport (CAPAT). Land transport officials quickly reacted to the measure, and said they were calling for a meeting in the following days with the Minister of Transport Guillermo Dietrich.

According to Carral, they would need to have a 35 to 50 percent price decrease to compete with the new flight prices. The sector is already experiencing a downturn, losing customers year after year. In 2011, 52.7 million people travelled by bus, a number that dropped to 37.3 million in 2016 and which dipped another 5 percent in 2017, according to official estimations.

This doesn’t come as a surprise. 20 percent of Flybondi passengers for example, are travelling by plane for the first time in their lives; one could assume that before they preferred to use buses for medium- and long-distance trips.