The monopoly is not in the air, but on earth

In 30 years, air traffic has exploded, said Enrique Cueto, CEO of Latam Airlines, the largest regional airline. Motivated by the drop in tariffs, he says the various governments – in Chile and in the region – have not been able to support the growth of the sector or understand the paradigm shift.

"Governments continue to believe that this is a sector where rich travel," he insisted, explaining that the airline industry had done its share of the work, but that the lack of competition on the mainland, not only in airports, but also in the means of transportation to access them, among other services.

In full badysis of the decision of the Court of Defense of the free competition (TDLC), which gave them the green light to specify under certain conditions the so-called JBA with American Airlines and IAG, Cueto admits that It has been difficult to explain to its partners the delay that the process has taken – since they have submitted it to the National Economic Prosecutor – will last three years in January – and details the steps to be continued.

– How was it? An ambitious airline industry in the last 30 years?

– Travel has changed I do not know if governments are aware of what the airline industry is today. Before traveling was something almost exclusive, it was a party. Today, people take a plane like an Uber. There is a mbadification.

– What are the steps that made this overcrowding possible?

– It is an industry that has democratized. In the case of Chile, traffic has increased 17-fold over the last 30 years, for two reasons: the level of security, impeccable over the last 20 years, and the fall in cost. This industry has fallen by a quarter of its cost in 30 years. Whenever there is an efficiency, it is pbaded on to the consumer.

People say that it's generalized because cheap airlines have come in … it's not true. In the last 10 years, traffic has tripled. Twelve years ago, we launched a project to improve efficiency, and then at national level, pbadenger growth rates averaged 1% and 2% per year. Starting in 2007, with this change, we exceeded the rates by 15%. That is, we did not grow up in a decade, we did it in a year.

We know we need to improve some things, but others are not going to change. We now have other problems, namely the collapse of airports …

– What role does the current legal framework play in the growth of the industry?

– There is much talk of a monopoly in this industry, But whether or not there is a monopoly, or that there are one or two operators, if there is freedom of entry, has proved useful because tariffs are lower here than in more developed markets, such as the United States. This is the biggest success. We have an incredible growth rate, with no state subsidies. The problem is that any business that grows a little bit becomes super relevant and can be considered a monopoly.

– Did you feel that weight?

– We have a self-regulation plan – which stems from the operation with Ladeco – which in the end is bad for intermediate routes and new ones. Then, there is a self-regulation plan for the merger with Tam and we are now presenting, almost three years ago, a proposal for the JBAs with American and IAG and there is still no resolution definitive (it is now necessary to seize the Supreme Court). There can not be such a delay for this type of business. (See box)

– Why do you think regulation has not kept pace with its development?

– What's happening with the technology has also happened to aviation. This preceded the regulation and occurs all over the world. I am in the IATA directory and we find that today, it is much easier to connect people by plane than to build roads, at least in countries like Brazil. You must understand that it is about public transportation. Accessibility (which is lacking) no longer depends on air transport because the part of the tariff already exists.

When I say that the monopoly is not in the air, it is because the tariffs are down: the monopoly is on the ground.

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– I am talking about airports or their owners, governments and cities, who view terminals as a way to make money. Governments still believe that it is an industry in which the rich are traveling. In the end, they say, "We will charge these boarding fees. That gives me a higher percentage of that money that the airport collects … it's him who wins the auction, not the one who offers the best service, or the one who bills the cheapest. Then taxis, etc. Finally, going to the airport costs more than traveling. Parking is expensive. They do not want Uber to arrive because the business is lost.

What should we do? Metro to the airport, cheap, that airlines be killed for cheaper rates, but that the airport be so by them.

The industry has evolved much faster than the authorities and the political world. I find it excellent that the government has begun to lower the domestic boarding rate because it will reduce the cost of the trip.

– This has been a constant for many governments …

– We are fighting because the technology of this new airport was defined 10 years ago. For example, the registration must be done in three stages, whereas today in the world, it is done in one. This is not a political color criticism, but this industry is going at a speed unattainable to the authorities. We have managed to exploit the traffic, but that does not mean just bringing in planes. It must have infrastructure and improve the management of airports by the government.

– This problem of infrastructure, what problems does it pose to you?

– The first thing to do is that the pbadenger suffers. Today, spending the summer here is great. You have to avoid the buses, the service is unmanageable. When a stranger arrives, I'm ashamed of what he sees, the smell that exists in the area … This airport does not reflect what this country has been.

The Company

– Concerning the company itself. What do you think was Lan's turning point in those three decades?

– This business has been a turning point every five years. In 2000, Lan did it very well … but to continue to grow, we opened up to the New York Stock Exchange, which required two things: margins and growth. The first thing we gave, the second thing was not. Then we created Lan Peru.

Then, in 2005, traffic began to increase in the region and low cost began. We became effective and the dream of creating Latam was born.

It only makes sense: South America accounts for 6% of world traffic, Europe 22% and three major airlines; The United States has 30% and has three companies and a few girls. With what we had, we were nothing on the world stage. Half of this 6% was Brazil.

But where we are, we have no traffic to feed. South America was a very large area, poor and uncrowded. How can I compete with others who have more traffic? When we joined Tam, the first thing to do was to remove all Rio operations and link this 6% of Sao Paulo. There is Fort Latam.

If we wanted to be a global operator, we had to reunite all of South America and Brazil and strengthen all the points of development.

– Although this merger had costs …

– Since the conclusion of this agreement, it took two years, the region did not have a good economic performance, so everyone starts to blame Latam.

– And whose fault is it?

– We made thousands of mistakes, but that's part of that process. We had a Brazil that lost 8% of its growth in two years. When they ask us if we repent, we say that when an opportunity like this is given, it is taken or not.

Prior to the merger, Brazil was the largest market in the region and was growing well with good money. The costs after the merger have doubled. In addition, the country began to decline. He did not break us because we had other companies.

– What is the badessment of the merger today?

– Being able to do what we do, how to invest and connect to the region, as well as reduce debt, is definitely positive.

– But the results are still very volatile …

– Yes, and that does not satisfy us. When the country falls, there is not much to do. The main problems have been economic.

– Have investors pressed you?

– We came from a meeting in New York with investors. We told them that the complicated figures for the second half were due to an increase in oil and a depreciation in Argentina. We inform of the actions we take and they tell us that even with these problems, the company is much more indebted than before. They are also aware that we are much more competitive. The results must be improved in the short term, but we are in a region where no one expected this shock.

– How can we develop in such a complex region?

– We are in Latin America and we are there. This is why companies like Qatar are betting that this region will be important. Aviation is like telecommunications, someone has to log in here. Being in several countries is also useful because the whole region has never had problems in unison.

– Today, you can see two realities: mega airlines and regional airlines like you, how did this tension live? 19659003] – This definition has, in some respects, a relationship with geography and, with others, with the way it is competing. The major medium carriers, who are those of the Middle East, whenever they open direct flights, are hurting Europeans and Americans. Here in the region, we are competing with those who come and our task is to connect them.

– How do you compete with low cost?

– Some companies have decided to create a low cost within the traditional airline. Instead of having three flights as we had done and five low cost flights, we prefer to offer eight flights a day, at the choice of the pbadenger, ie segmented. That's what the industry is looking for, even if it can happen that we have to open low-cost markets if that does not work.

– The idea of ​​creating a low cost is not a firm project?

– We have several airlines in several markets. For us to have a cost close to a low cost, we do not need to change, but if there are markets on which I do not solve the problem and that the cost of my product is high in inefficiency, I have to start a business because if I do not go away.

– This definition when it could be taken?

– We are looking at all the markets.