Europe-Latin America traffic has grown well above world averages
As Latin America's economic growth surge occurred, traffic between Europe and South America, as measured by RPKs, grew at an average rate of 7.9% annually between 2003 and 2013, compared with a world average rate of 6.2%.
In the global crisis year of 2009, traffic on the South Atlantic held up well according to Boeing data, growing by 5.5% despite a global fall of 2.4%.
Latin America to Europe route map
But the AEA and Boeing data do coincide in reference to traffic between Europe and Latin America in 2013, which slowed to below global air traffic growth rates. Nevertheless, the AEA data suggest that growth on the South Atlantic has generally out-performed against total world air traffic over the past decade. Adding in the Mid Atlantic to get total traffic from Europe to Latin America and the Caribbean, AEA data show slower growth than on the South Atlantic alone, but still on average faster than world traffic growth.
As Latin America's economic arrival occurred over the past decade, a shortage of airline capacity in the many trade linkages between Europe and Latin America has ensured rapid and often profitable expansion for the incumbent airlines.
Load factor levels have improved significantly, but are still off their 2007 peak. Data from AEA for the South Atlantic and Mid Atlantic combined show an improving trend since the early 1990s, when they were about 67%. After an 18 point gain from 1991 to 2007, load factors have broadly levelled out at about 85%. This suggests they may be near their maximum operational limits. Load factors dipped in 2008 and 2009 in the global downturn, but since then have gained about 4 points.
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South Atlantic annual growth in traffic (RPK)* Europe/graph1.png" alt="" width="400" height="205" /> |
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Mid Atlantic and South Atlantic development of load factors (%) Source: AEA
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South Atlantic and world air traffic (RPK) forecast* Europe/graph3.png" alt="" width="400" height="212" /> |
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Mid Atlantic and South Atlantic development of load factors (%) Europe/graph4.png" alt="" width="400" height="232" /> |
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Premium traffic growth on the South Atlantic and Mid Atlantic
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South Atlantic and Mid Atlantic premium traffic share* Europe/graph6.png" alt="" width="400" height="212" /> |
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South Atlantic annual growth in traffic (RPK)* Europe/graph8.png" alt="" width="400" height="219" /> |
But now South Atlantic traffic growth is forecast to slow. According to Boeing, RPK growth on Europe to South America averaged 7.9% from 2003 to 2013, while AEA data for the South Atlantic put average growth at 8.8% from 2003 to 2013. Combining AEA data for the South Atlantic and Mid Atlantic gives average growth of 5.5%. Nevertheless, Europe to Latin America remains a relatively small market: AEA airlines carry more than three times the traffic on the North Atlantic as they do on the South Atlantic and they transport almost twice as much on the North Atlantic as on the combined South/Mid Atlantic market.
Looking ahead to long-term forecasts, IATA's consensus projects an average growth rate of 4.5% pa for Latin America traffic (not just Europe to Latin America), while Airbus and Boeing expect slightly higher growth of about 5% on the South Atlantic over the next 20 years, in line with the average growth forecast by Boeing for world air traffic.
Different definitions of the South Atlantic can make comparison of data and forecasts from different sources a little tricky, but the slower growth of the AEA South Atlantic data in the past five years compared with the five years before that suggest that it may be a maturing market. Nevertheless, these forecasts offer considerably higher growth than in Europe or the North Atlantic.
Europe to South America represented only 1.7% of global RPKs in 2013, according to Boeing, but this is forecast to increase slightly to 1.8% in 2033.
South Atlantic premium traffic resisted the recession longer, and has outpaced world premium traffic in the recovery. IATA data show that premium traffic on the South Atlantic outgrew total world premium traffic in 2007 and continued to grow in 2008, when world premium traffic growth turned negative. While premium traffic on the South Atlantic fell by 7.9% in 2009, it performed better than total premium traffic, which fell by 15.8%. Since the recovery to positive growth, premium traffic on the South Atlantic outpaced global premium traffic growth in 2010 and 2011.
However, South Atlantic premium traffic growth lagged a little in 2012 - growing by 3.7% versus 4.8% for global premium - and turned negative (-0.3%) in 2013, when global premium traffic grew by 3.5%. Premium traffic growth on the Mid Atlantic has been slower than on the South Atlantic and turned negative in 2012 (-1.3%) and 2013 (-2.3%).
The South Atlantic's share of global premium traffic has grown from 2.4% in the 12 month period ended May-2008 to reach 2.6% in calendar 2013, although this fell a little from 2.9% in calendar 2012. Its share of premium revenues was 3.6% in 2013, down from 4.2% in 2012 and level with the 12 months to May-2008.
For the Mid Atlantic, its share of global premium traffic has remained broadly unchanged at about 1%, with its share of premium revenues at 2.1%, after dipping to 1.7% in 2012.
Europe to Latin America routes are still dominated by European carriers. In the general absence of viable long-haul Latin American airlines, European carriers continue to dominate routes between Europe and Latin America (including the Caribbean), having 83% of passengers in 2012 according to data from the Latin American and Caribbean Air Transport Association (ALTA). This share has bounced around over the years, but there has been no fundamental shift in Europe's dominance. OAG data put European carriers' share of seats at 86% for the week of 18-Aug-2014. Excluding the Caribbean from the picture, European carriers share on Europe to Latin America is only a little lower at 84% of seats.
Airline groups from Latin American and the Caribbean account for only four of the top 15 airlines groups on Europe-Latin America routes, ranked by seats. The highest ranked airline group from Latin America is LATAM, ranked only in sixth place. The clear leaders are Air France-KLM, with a 22% share of seats, followed by IAG with 19%. The Lufthansa Group is pushed into fourth place by TAP Portugal, reflecting the strength of the latter's Brazilian network. The European Big Three have 48% between them.
If the leisure oriented Caribbean is excluded from the data, then IAG and Air France-KLM swap places, but have a similar share at about 21%-22% of seats. TAP Portugal and Lufthansa remain in third and fourth places respectively, both with about 10%, and LATAM moves up to fifth place, pushing Air Europa down to sixth. The European Big Three have 53% of this market between them.
In terms of the global alliances, SkyTeam has the leading market share, while Star will suffer from TAM's defection to oneworld. SkyTeam is the clear leader on Europe to Latin America, with 34% of seats, followed by oneworld and Star on 24% and 18% respectively. Non-aligned carriers have 23%, more than Star, according to OAG (week of 18-Aug-2014). The transfer of TAM Airlines from Star to oneworld in 2013 led to Star's falling to the bottom of the pile.
Taking Europe to the Caribbean out of the equation, where SkyTeam and oneworld are strong but Star is non-existent, the rankings of the alliances remain the same although their market shares are closer to one another. SkyTeam remains the leader, with 35% of seats, followed by oneworld on 30% and Star on 26%. Non-aligned carriers are left with a measly 8% share of seats on Europe to Latin America, excluding the Caribbean.
TAP Portugal's privatisation could mean further changes to alliance positions. The destiny of TAP Portugal, whose privatisation process may soon be restarted, could be critical to the relative fortunes of the global alliances on Europe to Latin America ex Caribbean. If the Portuguese carrier ends up taking its 8% share of seats out of the Star alliance, it will consign Star to 'also ran' status.
Europe's Big Three have contrasting positions in Latin America. Each of Europe's Big Three has a different position and different priorities in Latin America.
Air France-KLM has more destinations overall (33) to Latin America than IAG (31) and the Lufthansa Group (only seven destinations). Air France-KLM also has a better balance between its group airlines, Air France and KLM, in terms of the number of destinations both in the Caribbean and in mainland Latin America.
In IAG, Iberia focuses on Central and South America, while BA takes the lead on the leisure-oriented Caribbean. The Lufthansa group has no Caribbean destinations and its small Latin American network reflects its relative lack of cultural or historical ties to the region.
The most important European country on routes to Latin America is Spain, due to its historical, cultural and linguistic links and because of its geographical positioning in the south west of Europe. Iberia is by some distance the leading carrier from Spain to Latin America, with almost twice the seat capacity of number two player Air Europa. In turn, Latin America gives Iberia its greatest natural strength and the carrier has 23% of its international seat capacity and 14 destinations in the region, although it no longer has any destinations in the Caribbean.
It is likely that Spain will retain its position as the leading European market to LatAm, but Iberia cannot take anything for granted, especially given Air Europa's aggressive growth plans. Recent confirmation by IAG that Iberia will receive investment in long-haul aircraft suggests that it may again start to expand in the region. Without a strong Iberia, IAG would be left with BA's mainly Caribbean-focused activities and a much weakened presence in Central and South America. Natural flows from Spain, rather than routing through London, would eventually be absorbed by other competitors, an unthinkable scenario for IAG.
Iberia's IAG sister company, British Airways, leads the market from the UK to Latin America, but the margin of leadership from number two player Virgin Atlantic is less than for any other big European flag carrier. BA has 17 destinations in LatAm, but 11 of these are in the Caribbean, as Iberia spearheads IAG's efforts in mainland Central and South America. Virgin's LatAm network also focuses on the Caribbean.
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Top 15 Airline Groups, Europe to Latin America, ranked by seats (8-Aug-2014 to 24-Aug-2014) Europe/graph7.png" alt="" width="245" height="347" /> |
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Top 10 Airline Groups, Europe to Latin America, excluding Caribbean, ranked by seats (8-Aug-2014 to 24-Aug-2014) Europe/graph9.png" alt="" width="245" height="346" /> |
Air France has 19 destinations in Latin America and is the biggest individual airline by seats between Europe and LatAm. It leads the market from France to the region by a bigger margin than Iberia does in Spain, benefiting from feed from sister company KLM (which has 14 LatAm destinations) and Skyteam partner Alitalia. Six of Air France's destinations are in the Caribbean, reflecting to some extent France's colonial past.
Although Lufthansa is the clear leader in Germany to Latin America, the region is an area of relative weakness to the Lufthansa Group. Lufthansa itself has only six destinations in the region, SWISS one (Sao Paulo) and Austrian none. Instead, it must rely on partners to expand its LatAm offer to its passengers. As noted above, however, Star Alliance is suffering a heavy blow with the defection of TAM to oneworld and it will be vital for it to secure the ongoing membership of TAP Portugal after the latter's restarted privatisation process.
Italy also has strong cultural links with parts of Latin America and Italy-Latin America is an important market in terms of traffic flows, mainly Italy-Brazil. However, Alitalia has reduced its network over the past year from five to three destinations (Buenos Aires, Rio de Janeiro and Sao Paulo) and only about 5% of its international seat capacity in LatAm.
It will be some time before, if ever, Latin American airlines are able to achieve some form of balance across the Atlantic. Since the demise of Brazil's Varig and while Aerolineas Argentinas remains weak, there are few signs of a Latin revival. This will imply a strong role for partnerships and alliances, while also leaving opportunities for the Gulf airlines to divert beyond-Europe traffic over their Middle East hubs. In the meantime, there are considerable opportunities for the European airlines to exploit.
Major European airlines: number of destinations in Latin America