Rafael Echevarne, ACI-LAC Director General
“This first semester, in Latin America and the Caribbean, commercial aviation has lost 170 million passengers and 2 billion dollars”
By Jeff Peet
1.- What is the operation or current reality of airports in Latin America and the Caribbean and what can you tell us, within the framework of what will be the “new normality”?
The first thing to note is that the airports in Latin America and the Caribbean have not ceased operating. The vast majority have continued to operate because, despite the fact that there are no passenger flights, there are cargo, humanitarian and repatriation flights. There are perhaps some small and rather remote that might have closed, but in a high percentage, the region’s airports have remained open. That means that there have been operating expenses for them. What has happened is a collapse of air traffic of unimaginable proportions. The months of January and February saw growth of 4 percent, but in March, when the Covid-19 arrived in Latin America and restrictions began to be applied, traffic collapsed by 41 percent, in comparison to the same month, in 2019. As of April, the drop has been 95 percent, although in June it seems that it begins to slowly improve with a general decline of 92 percent. If traffic has not stopped completely, it is because some countries maintained a certain level of operations. This is the case of Brazil, Mexico and Chile. But there are others such as Argentina, Colombia, Ecuador, Panama and Peru, to cite those with the greatest movement, which have been closed entirely to commercial air traffic. In Mexico, as in no other part of the world, there have been no restrictions whatsoever and they continued with the skies completely open for national and international flights. In both Brazil and Chile, domestic operations were maintained. June has been a month of change because countries like Ecuador opened up to air movement but with restrictions, due to the imposition of quarantines on those who arrive and that makes the recovery very slow. We are following the news in the sense that other places have restarted operations, although there is no set schedule for reopening. There are delayed decisions on reopening announced in Argentina and Panama, for example. Such measures vary from one country to the other.
Regarding the economic impact, the initial data that we have is that in the first semester of this year alone, between 170 million passengers were lost, which in revenue represents losses of 2 billion dollars, compared to the same period of last year. In terms of operability, on the part of the airport sector, creativity has been key in matters such as being able to park all the planes on the ground. That has involved great coordination to help airports take action, because their infrastructures are not designed for static aircraft. Nor can you use all the gates of the terminals, because some are needed at some point and, as I said at the beginning, the cargo traffic has been maintained and, in some parts, has grown. There are companies in this field that have been working hard.
2.- What is the main concern of the airport sector at present? One of the difficulties that have been encountered in some cases, is that the decision to restart operations has been left to local authorities. We have seen this, for example, in Colombia, where there have been greater concerns in some places than in others. Dichotomies have arisen where there are cities that want to relaunch air operations and others where they do not. This specifically happened in Bogota, which, due to having the highest level of traffic in the country, made it difficult to restart flights nationwide. Almost all flights include the capitals in our countries and there are few trips from one point to another that do not pass through such places. Likewise, there were episodes in other destinations such as Guayaquil, where the runway was blocked to prevent operations or allow the arrival of international and not of national flights, which was not consistent with decisions of the central government.
3.- How have airports in the region been able to collaborate for the sustainability of commercial aviation, with the understanding that many airlines in Latin America and the Caribbean are going through the worst crisis in history? As airports, we have focused on two key aspects. We should start by saying that airports receive 80 percent of revenue from passenger traffic. On the one hand, there are the rates that passengers and airlines pay for the use of infrastructures, which is the most important source in the world, and on the other, non-aeronautical revenues, which have to do with commercial activities such as duty-free purchases. Still, we are aware that companies are not flying and we have worked with airlines on the issue of slots in terms of relaxing principles such as if they are not used, they are lost, which avoids enormous pressure and, on the other hand, to make discounts in order not to charge for parking planes in many places. But all that is decided locally, since there is no general guide for very different realities. Some airports are hubs and others are not, so there are individual adjustments as to what can and cannot be done. In general, we have been very flexible, from an operational and financial point of view.
4.- Have costs or allocations needed to be adjusted?
That is a topic of the greatest relevance today. Airports have had to continue to pay wages and meet their obligations in that regard. There are areas that cannot be touched. I mean firefighter crews, for example, that should be available yes or yes. Also, the staff that is dedicated to operations management. But there are other areas, given the complexity of airports, such as financial sections, commercial departments, marketing, etc., for which drastic cuts have been announced. That is the case of Panama, where the Tocumen international airport has already recognized that there will be salary adjustments and, possibly, layoffs. But it is difficult to speak in general terms about it. I think that this problem is still developing and it takes more time to measure the true impact that the new reality will bring us. If I believe that there will be restructuring on the one hand, regarding the employees, we are already seeing them. This will be due to the losses already announced. What worries me the most, are many secondary airports that have been able to establish international routes, thanks to airlines that may disappear or undergo procedures like Chapter 11, which relates to bankruptcies. Finally, it should also be borne in mind that when airlines return to operate, they will do so in a smaller way, with planes of different sizes and smaller fleets. There will be route redesigns and not all flights will be resumed immediately and that will affect many destinations. The recovery will be gradual and not sudden, in terms of getting back to those levels that we saw before this health crisis and those that we will surely see based on the coming economic recession. There are estimates that some 50 million people will cease to be part of the middle class in Latin America and will fall into poverty. The impact of such a reality for commercial aviation will be enormous, not to mention for those secondary airports, which may not be active for a long time.
5.- Conversations are taking place with governments of the Latin American and Caribbean region, in order to cover costs, as a result of the decrease in air operations and the current paralysis. Is ACI-LAC part of those talks that also include airlines?
In this we have worked collectively with IATA and ALTA, but also individually with the understanding that there is no money to give to everyone. We know that our regional reality is not that of the United States, where the federal government of that country has already contributed more than 10 billion dollars to airports and they are already considering a second aid package. Furthermore, Latin America is the region in the world where there are more airports in private hands, which is a very important fact that occurs because governments often cannot bear that cost of that. I am not going to defend or promote privatizations, but this management model usually gives greater flexibility and dynamism, which is welcome. However, with the brutal standstill we are experiencing, if there were resources to support airport operations, of course they would be welcome. On the one hand, we have approached governments because these are concessions granted by those same governments. That means that they expect a payment that is related to sales, in exchange for this model but because the cash flow has dropped so dramatically, we are asking to be allowed to pay them later. In other words, that payments for concessions are delayed. So far, only one government has responded to this request, which is Brazil’s. They have allowed these payments to be made at the end of the year, which has helped enormously. We have also requested that those engineering works, which are often conditions of contracts that are based on development plans for facilities that are in the millions of dollars, are postponed. We are talking about a revision of the works schedules because, on the one hand, these are improvements that are not immediately necessary or that right now, with the drop in demand and traffic, are not urgent to carry out anymore. Another important element is to re-think the service contracts that had been agreed. For example, you could have asked for targets that we will not be able to meet. If the waits are longer, we will not be able to process as many passengers in the times established for it, before the pandemic. What we seek is that airports are not penalized for not complying with service levels that, given the current circumstances, they will not be able to achieve. Finally, we have suggested that they help us with the introduction of technologies such as those I mentioned before and for which today there are very high import tariffs, so that we can import the necessary equipment without being burdened with high tariffs, because that would help us to fulfill the management objectives that are expected from us. In short, we are asking for greater flexibility regarding demands associated with a reality that we could not anticipate nor foresee less than a year ago.
6.- ACI-LAC must be forecasting job losses both direct and indirect at airports in the near future. Is it possible to determine what is or will be the degree of affectation in this sense?
In Latin America, an estimated 430,000 people work at airports. That does not mean that everyone has an airport manager as an employer, but our partners that number 260, of whom 170 are private actors, have a great impact on who depends on or generates their income, from the point of view of its labor source, from an airport. This means that it is a fairly large workforce and that inevitably you will see conditions change. Right now, we are on the verge of calculating what you ask me, but we do not yet have a definitive number. If I dare to say that given the job opportunities that the sector has been able to offer in recent years, with the level of development that we had experienced, most likely there will be a decline depending on either the health crisis or the recession or the combination of both.
7.- The health crisis that has affected commercial aviation has strongly hit the commercial sustainability of airports. What measures are you planning to take in order to continue providing services in a context in which there is already talk of reducing operators and reducing the number of users?
Our main aim in this regard is how we can attract airlines that have strayed, in connection with the emergence of the Covid-19 pandemic. If the development of routes was important until before this juncture, now it will be even more so. Not only that will affect small airports, as I mentioned before. It will also have an impact at larger ones. For example, Air New Zealand has already announced that it will not return to Buenos Aires, that it will not cover this route and decisions like these, force us to work intelligently with tourism authorities, on the one hand, to reposition destinations and, on the other, to dedicate ourselves to the development of routes and to be able to offer packages that can give airlines the confidence that it is worth flying to certain destinations. In other words, what we will have to do is to greatly strengthen route development, although it is likely that we will have to wait a season to see what happens and how the sector is recovering. We think that only in the last quarter of this year, we will have a more complete projection of what the new conditions that we will face as an industry will be. Specifically, I am referring to those companies that have been able to overcome this crisis so far, those that have managed to obtain liquidity to continue operating. However we cannot be sure in what conditions they will be in the future.
8.- What measures is ACI-LAC taking or is going to take to face this health crisis, at airport facilities from the point of view that users can trust that they will not be exposed to being infected or any related risk?
In this sense, I would like to highlight the protocols that we have implemented, from the operational point of view and in the health field, in most airports. They are relatively simple procedures that do not require reengineering and are already in full swing. These consist, on the one hand, of those that concern passengers and, on the other, those that focus on airport sector workers. The former establish access to airports only for those who travel, to minimize the volume of activity; the compulsory use by everyone of masks within all facilities and being much more dedicated in terms of cleaning them, so that it is more thorough and with a series of products of greater concentration, following World Health Organization guidelines.Regarding measures that incorporate workers, I mean the use of personal protective equipment, installing plastic or glass closures or partitions in order to provide an adequate service and dedicate space to take the temperature of the people, if required. Ultimately, the idea is to give confidence to those who go to an airport that all the necessary measures are being taken to control and mitigate any risk. There are countries that have added the need to do tests, but that is on a case by case basis. It should be noted that never before in the history of aviation have airlines, regulators and airports worked in such a coordinated and rapid manner. In fact, from that point of view, we went ahead of the International Civil Aviation Organization (ICAO) that, shortly after, established similar parameters.
In addition, there is an important protocol that we have also adopted and that relates to maintaining proper social distancing, which is more complicated when queuing, waiting for security control or boarding a plane, not now that there is reduced traffic, but will be if demand recovers. Even so, we are already recommending that to the extent possible. I can assure you that we are being very strict in the use of the mask and in cleaning. However, we are no longer so concerned with the implementation of the protocols discussed above because they are clear and common to all airports and this has been very effective and efficient. Today we are already in a later phase, seeing how technology can be one of our greatest allies. I am referring to forms of facial recognition or the procedures that we can perform in a touchless manner. We hope that many countries will adopt these new ways of doing their work. In Uruguay, for example, they are already at the forefront of this and have become are a case of good practice, worldwide. Foreigners who come to that country from Europe do not have to interact with any person dedicated to border control, because the passport is verified through a computer system and facial recognition is added to that. Other destinations have been more reluctant, but our message is clear: If there is a time in the history of aviation when cutting-edge technologies must be adopted for this type of procedure, it is now. Basically, we are focused on creating an environment that is as safe as possible so that we can see a recovery in the sector, and it helps us that, until now, aviation is not a transmission vector. Rather, it is the safest means of transport and that is essential for the sector to start recovering. That will allow us to focus on when we will have more movement, not only of airplanes, but also so that passengers can enter a certain country. It is useless to say that the skies are open, if the entrance of those who are not nationals of that place is not allowed or if very strict quarantines are imposed, for people traveling for tourism or for business reasons. Finally, we are also very concerned about the impact of the pandemic in a post-Covid-19 world, which we know will imply a very deep and hard crisis. Without going too far, both the International Monetary Fund and the World Bank already forecast that Latin America will have the slowest growth on the planet in 2021. Every day that passes without air operations, it contributes more to the economic downturn that we are already experiencing. That, I would say, is our main concern, because it is the most complex issue.
9.- Until the beginning of this year, the industry had a good outlook for the near future. There was talk of consolidation, in the case of several companies, and several projects for expansions, modernizations and new airport concessions. That, surely, has changed. Expectations are very different and, as a consequence, growth prospects have faded. What are the expected changes and how will they affect users?
There is an example: in Brazil, it had recently been reported that the government wanted to continue granting airport concessions to private companies and, despite this crisis, there is still an appetite among investors for the airport sector, but that interest is likely to be re-evaluated. I would add that air transport is not a luxury for Latin America; it is, rather, an absolute necessity. We only need to compare ourselves to Europe or the United States, where there are a lot of ground transportation alternatives, whether by bus, car or even by rail. That is not the reality of our region. Many times these alternatives do not exist, it is that simple. For example, from Bogota to Medellin, in Colombia, you can go by plane in an hour or less. By car, that same distance takes ten hours on a hellish highway. These realities lead us to believe that if we implement the protocols as we have already done, there will continue to be needs to invest in airports, expansions, improvements and to finish projects that were already halfway to being developed. Furthermore, if we add to that the needs of the tourism industry, for which air transport is essential, there is no other option but to continue expanding the infrastructure currently in use. There is talk that, as a result of this crisis, the alternative is domestic tourism, but that is not enough.
10.- What vision can you provide regarding what it will take for the industry to recover and what do you think will be the most and least affected subsectors in commercial aviation?
It is important to note that, with what is called in English as “the new reality” that will come after this crisis, the experience of the passenger at an airport, with the introduction of new technologies, should not mean big changes. If the protocols are followed as we are seeing it, the truth is that the passenger should not face a very different reality, than the one we had before. The taking of temperature, for example, is being done automatically. Such procedures do not alter so much what was being done. More terrible was what we lived as a result of the 9-11 attacks, in the United States. The security measures that were adopted after that were much more restrictive than those that are being imposed now. What is true is that there may be habits that have been introduced now such as virtual conferences, webimars and all that, that have an impact because they could replace similar face-to-face events for which it was necessary to fly by plane implying a lower demand for air travel, but it is still early to say so. Perhaps, more opportune than predicting impacts is to say how we are going to recover and, in that regard, what I can say is that the fall will be 50 percent, compared to last year. In 2019, we had 680 million passengers in our region and this year we will have half, at the most. For this reason, each day that passes without the sector reactivating, will make things worse. What is relevant is to start planning for a recovery hopefully in the healthiest, safest and fastest way possible. I think we will return to the 2019 levels, only in the year 2023. And I am not referring to the growth trend that we had before Covid-19. The data we have today indicates that we will return to that rate in 2028, but I would like to emphasize that we have made these measurements based on preliminary data. However, what we are facing is the perfect storm, because this affects all aspects of the industry, so it is difficult to make a forecast that includes all the variables. There are many unknowns and it will take time to know what the final degree of impact will be, but commercial aviation and everything it implies, in the case of Latin America and as I have already pointed out, is more a necessity than an option.