ACMI as a Flexibility Solution for the Airline Industry in Latin America

Latin America has been among the regions most impacted by Covid-19. The pandemic led to stagnation of the aviation industry – in Colombia entire fleets were on ground for over 6 months, Chile and Brazil closed their borders, and some airlines were quick to cease their operations in many markets aiming to preserve their cash flow and contingency plans during the crisis. Three largest airlines in the region entered restructuring processes under the so-called Chapter 11 of the United States Code, constructing mechanisms that would allow them to cope with the dramatic impact on their finances by the rapid and remarkable fall in the number of passengers caused by the global travel restrictions.

It has been almost a year since the restart of operations and yet the industry still faces uncertainty because of possible closure of borders, passengers’ dynamics and even potential threats of new virus variants despite the advances in the vaccination processes. Airlines face planning challenges as is more difficult than ever to accurately plan the capacity demand for the upcoming months and seasons. This has led to having many fleets still on land along with reduced frequencies and operations with low levels of network coverage, compared to the scenarios observed in 2019.

So far, the demand has been driven mainly by occasional travelers, visiting their family and friends, and tourists, especially in domestic and medium-haul markets. The dynamics for intercontinental flights are still quite low and the situation for the next season is yet uncertain. In addition, there are many questions about business travelers and whether their numbers will return to the pre-Covid19 trends.

All this has let the airlines to rethink their operating models in order to optimize their capital expenditure (CAPEX), preserve and maximize cash flow, while optimizing their operations. The focus therefore has shifted to the Fleet Management division, allowing diversification towards flexible fleet models with short-term expansion and contraction models, under wet lease ACMI contracts (Aircraft, Crew, Maintenance, and Insurance). These types of solutions allow airlines, still facing uncertainty and rapid changes in passenger demand, to return to the air quickly and attend peak seasons in a timely manner. ACMI operation models offer solutions that allow the industry to quickly get back to the skies.

Although in Latin America we have seen the ACMI model used in extreme situations (during pilot strikes or in AOG situations because of engine failures), this financial and fleet management tool generates many benefits. It can be used as a long-term strategic solution, as well as a short and medium-term tactical instrument to attend different seasons in a cost-efficient way and with low or no impact on CAPEX at times when airlines are focused on their profitability, cash optimization and search for new operating models that are more efficient and less restricting.

ACMI solutions with great cost-efficiency and flexibility results for operators and airlines are widely used in Europe and Southeast Asia. This model also allows airlines, in the process of reducing their fleet size, to quickly recover their capacity and thus attend the peak season on high-demand routes without long-term resources and large investments.

The Time Has Come for ACMI as a Model of Operation in Latin America

The accelerated recovery of the industry in the region, along with the recently opened borders between the United States and Europe, encouraging the international travelling, as well as the dynamics in the domestic markets, brings forth some challenges for the region’s airlines. The reduced size of fleets, withdrawal of pilots and crews, besides the renewal of aircraft maintenance processes, generate risks for the operation and the possibility of responding quickly to the changing market.

The fine-tuning of operations, including the re-training of crews, the updating of licenses, procedures and protocols, and the reduced capacity in some airports call for different handling in the future: it is time to implement ACMI solutions that bring multiple benefits for airlines. ACMI can become a solution that will help to avoid resource setbacks, enabling operators to meet the needs of the industry with a much more efficient financial model. Likewise, it is essential to work together with governments to release regulations that allow flexible operating models and allow for rapid expansion and contraction models in operations with third parties.

Moreover, it is extremely important to have capacity contraction models, allowing fleets to move to other geographic regions that have opposite demand cycles, such as the Southern Cone of Latin America and Europe, generating solutions that would reduce fleet costs, crews and AOG situations in low seasons, creating a new dynamic for the airlines and generating valuable solutions.

Aviation is a widely regulated and standardized industry with the convergence mainly towards 2 or 3 large manufacturers, extremely high standards for global training, and state-of-the-art technologies. One could expect the industry to be able to cooperate with foreign operators to meet the passenger demand in a different way, also contributing to the GDP of the countries from the global aviation industry.

“The fleet flexibility and the use of ACMI models generate multiple benefits for airlines. Wet or dry lease models are used as strategic Fleet Management tools by airlines with significant benefits in CAPEX and Financial Results. In addition, such models offer advantageous flexibility of expansion and contraction in short seasons,” Darius Kajokas, the CEO of Avion Express, said.

“This is a key moment to redesign fleet operating models in the airline industry, especially in Latin America, replicating the existing models in Europe “, said Roberto Held, the Avion Express Business Development Head for Americas.