When Argentina grows new wings

Up, up and away from high costs and inefficiency? New deregulation measures for Argentina's aviation sector can open up great potential.

Argentine government today initiated a series of reforms to modernize and deregulate the aviation sector through decree 599/2024. These measures enable new operators to enter the market, increase transparency in the allocation of flight slots and schedules, and optimize airport services. Processes are being digitized, ground services deregulated, and route approvals expedited. Additionally, requirements for small aircraft are being simplified, enhancing connectivity for mid-sized cities.

According to an official comuniqué, the reforms are part of emergency decree DNU 70 from December 2023, aiming to remove unnecessary barriers, promote regional and global connectivity, and establish principles of market access, commercial fairness, tariff deregulation, and operational safety. The goal is to increase connectivity, flight frequencies, and the number of airlines, thus boosting tourism with competitive fares.

Investments will also be encouraged to strengthen operational safety. The sector's regulations have not been updated in over 70 years. The plan includes further decrees to reform the Aeronautical Code, eliminate monopolistic laws, and implement open skies policies. These measures were driven by the newly created Ministry of Deregulation and State Transformation in collaboration with various sectors and industry stakeholders. The Government has already signed open skies agreements with several countries and plans to expand these agreements.

This ample reform aims to address long-standing problems in Argentina's aviation sector by attracting more operators, offering more competitive prices and improving infrastructure. According to presidential spokesman Manuel Adorni, modernizing and liberalizing airspace will increase connectivity, attract investment and offer more accessible routes at lower prices.

For decades, Argentina's aviation sector, dominated by state-owned Aerolíneas Argentinas, has lagged behind regional competitors, despite its enormous geographic location and tourism potential. Key aviation metrics show that the sector is underdeveloped compared to similar economies.

The number of seats offered per capita in Argentina is less than a third of that of neighboring Chile. At 19 million passengers (domestic and international, 2022), Argentina's passenger traffic compares poorly to Brazil's 102 million. Even taking into account the difference in size of both countries, Brazil's traffic is almost twice that of Argentina.

At the same time, Argentina's airport infrastructure is partially outdated and managed by monopolies, leading to inefficiencies and capacity constraints. In terms of ticket taxes, Argentina ranks 130th out of 136 countries, indicating high operating costs and reduced competitiveness. Acording to IATA, depending on the base fare, up to 54% of the total value of an air ticket paid by passengers in Argentina in Pesos is composed of taxes.

Another critical issue is the role of unions. Argentina's aviation sector is heavily unionized, with at least six influential and often militant unions. These include unions representing pilots, ground staff, technicians, cabin crew, transport workers, and flight engineers. In the past, these unions have had significant influence over operational decisions, often leading to strikes and disruptions, maintaining the status quo and making comprehensive reforms difficult.

Potential from liberalization and open skies policy

The new deregulation measures offer significant potential for growth and development in Argentina's aviation sector. Increased competition from allowing more domestic and international airlines could lower prices and improve service quality. Improved connectivity can boost tourism, trade and investment, contributing to broader economic development.

Expansion of the aviation sector can create new jobs and support industries such as tourism and hospitality, compensating for potential job losses in the overpopulated state-owned airline. Increased frequencies and new routes are expected following deregulation. Reduced regulatory burdens and competitive ground services can reduce operating costs and increase operational efficiency.

Improved market conditions should attract new investment flows, both domestic and foreign. Peter Cerda, IATA's Regional Vice President for the Americas, said a few months ago that Argentina has the potential to become a regional aviation hub. Strategic aviation policies and infrastructure investments are critical to realize this potential. He noted the positive change in the new government's attitude toward the industry, stressing that recent changes have revitalized dialogue and cooperation, which is essential for regulatory reform and the sector's competitiveness.

With the support of President Javier Milei's government, the aviation industry could become a major driver of economic growth. Speaker Adorni stressed the government's commitment to modernizing the sector, noting that deregulation will encourage new business opportunities and break down monopolies that previously benefited from a lack of competition.

To sum up, the Argentine aviation market is on the cusp of transformative change with the recent deregulation measures. By eliminating long standing inefficiencies, reducing operational costs, and fostering competition, Argentina can unlock significant economic benefits and improve its position in the regional aviation market. Addressing the influence of powerful unions and ensuring the sustainable implementation of these reforms will be crucial. Balancing the needs and rights of workers with the goals of increasing efficiency and competitiveness will be key to unleashing the potential of the Argentine aviation market. This transformation could bring the Argentine aviation industry closer to the levels of Brazil and Chile, thereby fostering overall economic growth and development.