Viva Air Eyes Longest range, largest share of the South American market

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Viva Air’s Bewley talks:

  • Like Medellin it could be a bigger hub between North and South America
  • The surprising rate of recovery in demand from South America
  • The future of business class on Colombian short-haul flights

While most airlines are still working to bring capacity back to pre-Covid-19 levels, South American low-cost carrier Viva Airlines has already recovered well beyond pre-pandemic levels. The carrier is now looking to further expand its international presence, boosted by some new aircraft arriving, and to build its market share in South America. Viva Air CFO Jason Bewley recently spoke to Michael B. Baker about why he thinks LCCs are set to become a bigger presence in South America.

BTN: What does the Viva network look like today?

Jason Bewley: We are two airlines, Viva Air Colombia and Viva Air Peru. Our main hub in Colombia is Medellin and we also have hub operations in Bogota and Cali. In Peru, Lima is the hub, and we fly between Lima and Bogota and Medellin, but we also fly between Bogota and Medellin in Mexico City and Cancun, and Medellin in Miami and Orlando. We are 21 aircraft, soon 22, all new aircraft, a combination of CEO and Neo, all Airbus A320, and we have eight more Neos arriving next year. Today, in the fourth quarter of 2021, we are about 57 percent larger in Colombia than two years ago, and this is a rather unusual story, as most airlines are still struggling to return to pre-Covid capacity levels. . This is a story about LCC in general down here. In South America, most LCCs today are larger than they were pre-Covid. It is a question of the market that really begins to adapt and that the business model starts to grow, because in the past it has been dominated by legacy carriers.

BTN: What is the layout of your plane?

Bewley: It is a one-class, 188-seat configuration. It is very similar to Spirit or Frontier. We have a slightly denser cabin than them, a couple of seats denser than any low-cost airline in the world, but it’s essentially the same thing. Some rows have more legroom, such as the exit rows and the rows at the front. With some of the Neos arriving mid-next year, we will have an extended range. We are going to buy the further [maximum takeoff weight], which allows them to take off with more fuel, so they buy us additional range, so they can go deeper into South America and North America. With those long-range aircraft, we will put reclining seats in the front, about one third of the plane, as an option. It’s an upsell, but we’re still a one-of-a-kind setup.

BTN: What are your busiest routes right now?

Bewley: During the tourist season, which starts here in another month, our most frequent route is Bogota-Medellin. It is for both business and tourism and we have connections in both places. The home network in Colombia is quite well structured. Many of our new aircraft will be focused on international expansion. We see Viva as perfectly positioned between the two continents. If you look at Copa, which is not an LCC but a fairly well-run, cost-efficient airline, it does a good job connecting North America and South America via Panama. We see ourselves in the same kind of position to do so, being positioned in the northern part of South America in Colombia, but with two advantages: we are a true LCC and our costs are much lower than legacy carriers and we have a national network, so not only we can take you from North America to Medellin, but we can connect you to one of the many, many cities in Colombia. This is unique, because there is really no home network within Panama. We consider ourselves the Copa of [ultra-low-cost carriers] and it’s a unique game, because if you look around the world, there is no ULCC that sits perfectly within two continents, capable of reaching both. With the arrival of the new Neos, we can go north to Toronto or south to Buenos Aires and Santiago. If you look at JetSmart, based in Chile, or Sky, based in Chile and Peru, they fly the same planes we do but can’t reach America, essentially.

BTN: Do you have an estimate of your mix of business and leisure travel?

Bewley: We focus on cost-conscious consumers, whether it’s a tourist or a business. We have business passengers who fly with us but don’t have a way to specifically identify that passenger. You can look at the patterns and how long they stay in one place, but we’re heavily on leisure. At the same time, I would say that between 20 and 30 percent of our customers travel for business. It could be a small business owner or a lawyer who chooses Viva for convenience or price. We may not offer the business class and lounge access of our competitors, but we have new aircraft and one of the best punctuality records of any airline in the world, certainly here in Latin America. Our competitors [both Latam and Avianca], it’s no secret, they’re in chapter 11 and they’re renovating. They are talking about going more towards the ULCC model, and in one case, they are embracing that model. If you advance a few years, much of the capacity in Colombia here will be dominated by ULCC or LCC configurations. I don’t see much business class flights between inland cities in the future.

BTN: How is demand picking up in South American markets?

Bewley: Both Colombia and Peru have experienced one of the longest closures in the world. I think Colombia’s only longest stoppage was Argentina, just a little bit, but we were effectively closed from April to August 2020. We didn’t really have good visibility on what the recovery was going to be like. He surprised us on every front. We are back faster and stronger across the board, not just in terms of capacity but also in terms of pricing power. Where we sit today, in Colombia we are 57 percent larger than we were in 2019 and our planes are full. We are running load factors similar to 2019 or higher, so the demand is there. Clearly, he is a price-conscious consumer. The economy is still returning from Covid, so price is king right now, and this is where the LCCs have taken advantage of the situation. If you look at pre-Covid Colombia, Viva had a market share of around 15 or 16% in the Colombian market. Today we are around 25%. The market is now dominated by three carriers, with Avianca still the largest at 50 percent, then us and Latam in the mid-1920s. If you go back to pre-Covid, Avianca was more than 60 percent, so we went from a market dominated by one carrier to one more shared by three carriers. In South America in general, Avianca and Latam have continued to shrink as a result of the restructuring and LCCs have gone into the vacuum to offer what the consumer wants: a cost-oriented product, a safe product, and something that is on time.

Until we see restrictions disappear, you will see international travel eased somewhat. When we saw restrictions disappear in Peru, where there were some really restrictive rules in terms of quarantines and tests, we saw an immediate spike in bookings. They have since re-enforced some restrictions, but they are more reasonable. We believe there will be a large flow of international traffic as borders are fully opened and restrictions lifted, which will also help business travel customers.

BTN: What’s your distribution strategy? Are you largely direct or do you work with global distribution agencies and systems?

Bewley: All of the above. We are very similar to our ULCC competitors in that we prefer direct booking, which is our cheapest distribution channel, and we have the most control over it, but we recognize that we are a Colombian-based carrier looking to do business in the United States. United, Mexico and soon other countries such as Chile and Argentina. As you start entering new markets and run into more known competitors, like spirit, obviously having distribution is key, so we do GDS, and we work with online travel agencies.

BTN: Do you sell different types of rates?

Bewley: It’s like any other low-cost carrier. We have a basic product, and depending on when you buy that seat, the prices will increase as the flight approaches. With ancillary costs, we do not moderate those based on demand at this time. Some of the more sophisticated LCCs like Spirit do this, so if you have a heavily booked flight, their baggage fees may be more expensive than, say, same-day opposite direction due to demand. We will implement this approach over time, as it is obviously a complex pricing model that requires IT solutions to do so. We’ll get there, but today all of our accessories are a fixed cost.

BTN: Does Viva have a loyalty program?

Bewley: Not yet. We recently launched the new Viva credit card which offers consumer benefits in terms of discounts and cash back, but not a traditional points and miles program. It’s something we’re looking into and studying, and I wouldn’t be surprised if we did something about it.

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