Latin America

Lower but steady growth

The World Bank semiannual report projects 3.5 percent GDP growth in Latin America and the Caribbean for 2013, better than last year's 3 percent, but still lagging the 5 percent historical trend and the 6 percent growth in 2010. The Economic Commission for Latin America and the Caribbean predicts Latin America's fastest growing economies will be Paraguay (10 percent), Panama (8 percent), and Peru (6 percent). Growth in Brazil and Argentina will not meet previous expectations.

Political and macroeconomic stability, solid growth, poverty reduction, and a fairer income distribution buoyed regional growth in the 2000s. The World Bank projects that future growth will rely more on a demand-driven domestic economy and less on cheap labor, exports, and undervalued currency. A robust aviation sector is crucial to growth. Brazil, the world's seventh largest economy, has the third largest domestic aviation industry. Total domestic RPKs have nearly doubled from 44 million RPKs in 2007 to 87 billion RPKs in 2012. A majority of interstate passengers now travel by air.

A wave of consolidations

LATAM Airlines Group, established as the parent of LAN and TAM, is the largest instance of a massive consolidation trend that includes the mergers of Avianca with TACA, Gol with Webjet, and Azul with Trip. The region's fleet, meanwhile, has grown from 950 airplanes to more than 3,790 and will need 2,900 new airplanes with a value of $300 billion by 2032. Average airplane age in the region's fleet has been reduced from 14.8 years to 9.7 years since 2003, giving Latin America a younger fleet than those in the United States and Europe. Major carriers are cutting unprofitable routes and reducing capacity to achieve a more sustainable business environment.

Rise of the low-cost carriers

LCCs have grown quickly in Brazil and Mexico, Latin America's two largest markets. LCCs now account for more than 50 percent of Latin American capacity. The Ryanair-backed Viva Group already controls VivaAerobus and VivaColombia and is said to be eyeing expansion. LCCs are also extending their reach through partnerships. With only six LCCs in the region, the potential for expansion is great.