In Part 1 of this report, we looked at the reasons why commercial air traffic in Colombia has been so sturdy post-pandemic, with some airports reporting growth as high as 60% last year versus 2019. This rebound occurred while the two largest airlines were under Chapter 11 bankruptcy protection making it all the more remarkable.

The growth was facilitated by the emergence of the low-cost model at scale, but there are factors that might impact the continued strength of this recovery. On the other hand, there are also some positives that will continue to stimulate the market.

In terms of airline development, it appears as if Viva has overplayed its hand in the past two years, despite growing its market share (see chart below). The airline has hit some financial turbulence and on February 10, the carrier entered into a 90-day debt restructuring process and has since been forced to take five jets out of service to cut costs.

The airline could be saved by a merger with either Avianca or Jetsmart from Chile which have both announced interest in the airline.

Caution on Mergers

Avianca’s rescue plan for Viva was rejected late last year by AeroCivil, Columbia’s civil aviation authority. The decision promoted a sharp response from Adrian Neuhauser, President and CEO of Avianca, who said: “It goes against the needs of the country and ignores the potential effect that the disappearance of Viva would have on users and the market.”

Avianca itself emerged from a Chapter 11 process in December 2021, when it vowed to nearly double its network to nearly 200 routes in Latin America and the world by the end of 2024. Most routes being added are point-to-point. Looking further ahead, the airline has a large aircraft order outstanding of 88 A320neo aircraft and a further 50 options, which will be incorporated into its fleet between 2025 and 2031.

Meanwhile, Ultra Air is set to grow further following its request to start operating almost 50 new international routes to 13 countries in 2023. Some 15 routes are already approved while 33 are still under review by the authorities.

Chilean low-cost airline Jetsmart is also interested in entering the Colombian market and has proposed to base 12 aircraft in the country over a three-year period. The airline’s request is currently being processed by the civil aviation authorities.

The End of VAT Discounts

Another possibly larger threat is the ending of the VAT discount provided by the government, which was a temporary measure until December 31, 2022. This will most certainly lead to airfares rises.

Additionally, the economy is forecast to see a tougher year with hardly any growth in 2023, due to the country’s depreciated national currency, on top of the inflation issues impacting the world globally.

The recent strong recovery and confidence of the airlines shows, however, that the air traffic market is resilient and can flourish in the medium term.