Argentina Pinches Low-Cost Carriers With Fare Rules Favoring State Carrier

The Argentine government turned back the clock and returned to the tariff bands system for domestic flights, which had been eliminated by the previous government.

The decree issued late in December will limit the opportunity for low-cost airlines like JetSmart and Flybondi to compete with state-owned giant Aerolineas Argentinas.

Decree 879/2021 established a 180-day period for the Ministry of Transport to determine rate bands that will cover operating costs. It also set new timeframes for crew rest, in response to a claim made jointly by the most important unions in local aviation last September.

The decree says the measure is to stop “predatory practices,” which include prices that do not correspond to real operating costs, that “lead the whole system into a collapse” in the pursuit of “excessive returns,” and “ephemeral economic advantages” for consumers.

Most importantly, the norm established that the Argentine aviation regulator ANAC will determine capacity and frequencies for new international flights and assign them to local companies only when Aerolineas cannot meet demand. This preference for the state-controlled firm puts a cap on the international development of airlines like Flybondi, which just began connecting Argentina with Brazil and Uruguay.

Carlos A Vázquez, an executive at Aerolineas for more than 20 years and, since 2003, a partner in Air Consultancy, said the measure seeks to remove low-cost airline competition for the state’s more complex company and its higher costs. He believes ANAC, which is managed by sympathizers of La Campora (a branch of the ruling Peronist party), might deny frequencies and routes to other companies or change their entry point to important markets like the U.S., reserving the best routes for Aerolineas.

Argentina Chief of Cabinet Ministers Juan Manzur met with executives from Flybondi and JetSmart in December.

At the time, Flybondi announced a $42 million investment to double its fleet before June 2022. Since it began operations in 2018, Flybondi has grown its market share to 16 percent and flew more than 3.3 million people, 20 percent of whom were first-time flyers.

Flybondi declined to comment, saying it is still analyzing the implications of the decree.

JetSmart, based in Chile and owned by Indigo Partners — and potentially soon American Airlines — told Manzur it had plans to operate 10 new routes this year. In 2021, the airline transported more than 1.1 million passengers and began flying to Uruguay.

The Chilean discounter is also still studying the potential impact of the decree while waiting for the Ministry and ANAC to rule, according to JetSmart's commercial manager Darío Ratinoff. “We have a long term commitment in Argentina, and we seek to offer a complementary service to those already in place, with a clear option based in operational efficiency and accessible prices”, he said.

Argentina's budget carrier market grew during the administration of former President Mauricio Macri. The administration eliminated rate bands in 2016 and turned the military airport, El Palomar, into a commercial terminal for low-cost airlines in 2018. Lowering costs, multiplying connections, and favoring private investments were some of the main political claims for the center-right party, Cambiemos.

Meanwhile, the current Peronist administration of President Alberto Fernández favors Aerolineas and the state operator of land services in airports, Intercargo, also controlled by La Campora, according to Vázquez. The consultant said the regulation makes it non-viable for companies to have their own land services, and Intercargo’s are costly and inefficient.

In 2020, Fernández’s government turned El Palomar back to an Air Force terminal, arguing it wasn’t sustainable to keep three commercial airports in Buenos Aires.