El Norte: Avianca’s strategy offers hope for Latin American carriers

Finding a foothold

With the help of CTPA, Avianca moved aggressively on North American air cargo markets. And while the carrier isn’t making profits hand-over-fist these days in this tough market, its relative success seems to be the product of a number of strategic decisions taken over the last few years.

In its 2015 20F SEC filing, Avianca noted that it had expanded its footprint in the cargo business in Latin America by optimizing freighter schedules “in spite of market imbalances” and by maximizing belly utilization. A year earlier, in 2014, the carrier acquired an ownership interest of 25 percent voting rights and 92.7 percent economic rights in the Mexican all-cargo airline Aero Transporte de Carga Unión, S.A. de C.V., known as Aerounion. The acquisition of Aerounion, as well as a 6.6 percent increase in freight through Miami International Airport, represented a concerted pivot by the Colombian carrier towards U.S.-South America traffic, giving forwarders more route choices for perishables destined for North America, Asia and Europe.

Commenting on the ability of the Aerounion acquisition to drive north-south traffic, Carlos Andrés Arango, Avianca’s commercial director, said, “West Coast customers now have the ability to get into Central and South American markets vía Mexico. Through our network in Asia we have been able to do the same vía LAX and daily service to MEX and beyond.”

Avianca Cargo has also entered into partnerships with larger carriers such as Etihad, connecting to the latter’s massive Middle East hub, which Aponte regards as crucial. “Either you make alliances or you disappear,” he said. This strategy of diversifying risk has played out across the aviation sector, and in Avianca’s case it complements moves like the Aerounion deal – engaging a variety of carriers through partnerships and acquisitions.

For the past five years, Avianca Cargo began north-south operations to Viracopos International Airport, Eduardo Gomes International Airport, Montevideo, Silvio Pettirossi International Airport and Central America, Arango said. The new routes allowed the carrier to diversify its operations to reduce its reliance on specific markets. He added that “Avianca Cargo also has more than 100 interline agreements that allow us to connect cargo around the world.” One successful example is the carrier’s partnership with Etihad Cargo on a freighter service connecting Bogota with Milan and Amsterdam.

Between 2014 and 2015, Avianca saw its cargo traffic to the U.S. rise more than 21 percent to 41.4 million freight tonne kilometers during a period when carriers with a strong north-south presence saw their volumes decrease by 12 percent, on average. For comparison, South America’s other big airline, LATAM, saw its U.S.-bound cargo fall by 12.14 percent over the same time period.

While operating in a recessed market, Avianca Cargo also added five new A330-200Fs to its fleet – a difficult proposition considering the economic conditions. During 2015, as the overall market contracted, Avianca Cargo saw approximately 17.3 percent growth in transported tons of cargo. Concurrent yields held steady at 44 cents over the last two years, measured by cargo revenues/RTKs, as the load factor contracted by 1.5 percent to 58.5 percent between 2014 and 2015.