Rivals Avianca and Latam Airlines Face Off in Colombia
South America’s second-largest airline, Avianca, emerged from its U.S. Chapter 11 restructuring over a year ago as a fundamentally changed carrier. It would no longer be known as a full-service airline, but instead would add aspects of the budget carrier model that is rapidly expanding in the region.
Out were business class seats, free food and drink, and other extra amenities. In were a la carte fare bundles ranging from the no-frills “XS” to all-inclusive “L” for economy class travelers, new seats in a more densely packed layout and more point-to-point routes that bypass its traditional hub in Bogotá.
“We don’t want to lose our historical customers — we want to keep a differentiated product to address them, but on the other hand we have to acknowledge that our competitors has a much lighter product,” Avianca CEO Adrian Neuhauser, who replaced Anko Van der Werff in April 2021, told Airline Weekly late that year. “So we try and find that balance.”
The changes have made Avianca more like the growing segment of discount competitors, including JetSmart, Viva Air, and Copa Airlines-owned Wingo. But, as the legacy carrier has gone downmarket, an opening in Colombia has emerged for one of its biggest rivals: Latam Airlines Group.
These shifts are no small matter for Latin America’s burgeoning airlines. Colombia is the region’s third largest aviation market after Brazil and Mexico, and one of the first to recover from the pandemic. During the first 11 months of 2022, a record of nearly 43.6 million people moved through the country’s airports according to civil aviation authority Aerocivil.
With such a large market at stake, and one where many people still travel by bus, the potential opportunities for airline growth are immense.
Avianca’s shift to a budget airline began before its bankruptcy. Former CEO Van der Werff began its restructuring in 2019 before the Covid-19 pandemic upset those plans. But a year after emerging from bankruptcy in December 2021, it introduced what might be its most impactful change yet: eliminating free snacks and drinks on most flights to roll out a buy-on-board menu. The new menu is now available on domestic flights in Colombia and Ecuador, as well as international flights in the region.
Avianca continues to offer complimentary meal service on its longest flights, including to Europe and Los Angeles. However, this still leaves passengers on flights of more than six hours — like Bogotá to São Paulo — without complimentary food.
The change has caused an uproar among some passengers, particularly on social media, where they have pushed back against having to pay for bottled water on flights. An Avianca spokesperson told Airline Weekly that passengers can ask for water by going to the rear galley of the aircraft.
The spokesperson also said the new buy-on-board strategy falls in line with the industry trend of customers paying for only what they want. They highlighted that the new menu offers more snack and drink options than before, as well as other products like blankets.
Meanwhile, Latam has been steadily expanding in Colombia. In the first quarter of 2023 it will operate 58 percent more seats to and in the country than it did four years earlier, according to Diio by Cirium schedules. The growth comes as executives at the Chilean carrier, which underwent its own U.S. Chapter 11 restructuring, have identified Colombia as one of its key growth markets.
Henry Harteveldt, travel industry analyst and president of Atmosphere Research Group, said he thinks a traditionally full-service carrier like Avianca stripping out amenities could risk alienating premium customers, and increasingly need to differentiate itself by price when competing in the market.
“Avianca is taking away things that can help distinguish it from budget airlines that may offer better prices, and from the only other major competitor it faces on a network basis, and that’s Latam,” Harteveldt said. “Meanwhile, if I were at Latam, I would be pointing out any product and service superiorities I have, trying to win over Avianca’s base of premium customers.”
Latam continues to offer free snacks in economy class on flights in and to Colombia, as well as meal service on longer international flights. This differentiates the airline not only from Avianca, but the burgeoning number of low-cost carriers serving the country. Also, in August Latam announced that it would run a promotion to match the status of any Avianca frequent flyer in its own loyalty program, Latam Pass.
In terms of pricing, Latam, like Avianca, sells fares in bundles that also range from no-frills “basic” to all-inclusive “top” for a premium economy-like product with a blocked middle seat.
When asked about Latam’s competition in the Colombian market, an Avianca spokesperson said: “In the process of defining our new business model, and when we see the context of the airline industry globally, we understood that we had to refocus on what is important, and that means, for example, prioritizing profitability over market share, margins over growth, operational reliability over luxury and consistently affordable fares over volatile promotion models.”
Avianca, which estimates it carries just over 39 percent in Colombia’s domestic flyers and nearly 37 percent of international travelers, further embraced the low-cost playbook in April when it unveiled plans to acquire low-cost competitor Viva. That deal hit a snag in November when Colombia’s aviation authority rejected the merger, but was revived in January when the agency said it would review the tie-up again.
Avianca and Viva combined had a seat share of nearly 55 percent on all flights in and to Colombia — including both domestic and international airlines — last year, according to Diio. Latam had an 18 percent share.
But different from strictly low-cost carriers, Avianca has found ways to offer some differentiation for premium customers. Its new seating configuration features both economy, extra-legroom economy, and premium economy seats. The airline has reconfigured roughly 70 Airbus A320-family planes to date. Avianca has also kept its loyalty program, LifeMiles, and global partnerships, including with United Airlines — two things budget airlines typically avoid.
But in terms of partnerships, Latam’s newly approved joint venture with Delta Air Lines could renew pressure on Avianca to move forward with its stalled proposed joint venture with Copa and United. Latam and Delta have promised to grow on U.S.-South America routes under their new alliance.Subscribe Now to Airline Weekly
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