Latin America

Economic growth slow but improving

The economic outlook for Latin America and the Caribbean is fairly upbeat. The World Bank predicts that growth in the region will strengthen steadily from 2.9 percent in 2014, to 3.2 percent in 2015 and to 3.7 percent in 2016. The region's expected growth is up significantly from last year's modest 2.5 percent growth. The top growth performers for 2014 are expected to be Panama (7.3 percent) and Peru (5.5 percent), while the region's economic powerhouses, Brazil and Mexico, are projected to grow 2.4 and 3.4 percent, respectively. Other countries in the region are also expecting robust growth rates, likely between 3 percent and 5 percent in 2014.

Air traffic growing with middle class

Political and macroeconomic stability, solid growth, poverty reduction, and a fairer income distribution buoyed regional growth in the 2000s. According to the World Bank, the region's middle-class population now outnumbers the poor population for the first time, a sign that Latin America is becoming a middle-class region. A robust aviation sector is crucial to sustaining this growth. Brazil, the world's seventh-largest economy, has the fourth-largest domestic aviation industry. By 2017, Brazil's total domestic passenger load will grow to 122 million (from 90 million in 2012), which will make Brazil the world's third-largest market.

Airline industry stabilizing

On the heels of significant consolidation, including the mergers of LAN with TAM, Avianca with TACA Airlines, GOL with Webjet, and Azul with TRIP, the region's airline industry is focusing on growth and profitability. By 2033, the region's airlines will need 2,950 new airplanes with a value of $340 billion. Although some of these airplanes will replace retiring jets, more than 70 percent will be for fleet growth, pushing the region's fleet to 3,530 airplanes, compared with 1,380 today. As airlines added new airplanes over the past decade, the average age of the region's fleet has plummeted from 14.8 years to 9.7 years. In addition, major carriers are cutting unprofitable routes and reducing capacity to achieve a more sustainable business environment.

LCC opportunities continuing

LLCs have seen rapid growth in Latin America's two largest markets, Brazil and Mexico, where they now have penetration rates of 46 and 63 percent, respectively. Significant opportunities still exist for LCCs to penetrate the markets of the other countries in the region. Existing LLCs are accordingly planning for growth, through expansion and through partnerships.