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Uncertain political landscape clouding Argentina’s open skies policy

Argentina’s airline industry is experiencing a significant overhaul under the incumbent administration of President Mauricio Macri. Breaking with traditional protectionist barriers preventing new players from entering the market, the government continues to encourage investors to participate in the expansion of civil aviation in the country. Owing to insufficient transportation infrastructure, railroads or highways at a national scale, the government has committed to improving connectivity across the country by turning its attention to the airline industry, promoting the establishment of hundreds of new routes served by private enterprises; pledging to accomplish what it calls an “Airplane Revolution”. However, despite clearly benefiting consumers, Argentina’s open skies policy has not been welcomed by the nationalist opposition, pilot circles, and unions, casting doubt on the mid-term feasibility of market-oriented approaches toward the airline sector in the country.

To illustrate the expansion of the industry, the number of domestic and international flights has increased respectively by 15% and 19% since September 2015. In turn, during the same period the number of passengers has increased 37% for domestic flights, and 31% for international flights. Moreover, while in 2015, during the final year of former President Cristina Fernández de Kirchner’s administration, the state-owned Aerolineas Argentinas and its subsidiary Austral had 74% of market share of domestic flights, in 2018 that number has dropped to 66%. Despite the national carrier still enjoying a privileged position in the market, the airline is not profitable and relies on public subsidies to sustain its operation since its nationalization in 2009. Notwithstanding the economic benefits associated with the establishment of new routes and greater competition in the industry, officials recognize that the more private players expand operations in the country, the harder it will become for Aerolineas Argentinas to become financially sustainable.

Noteworthily, following pressure from private interests, in July this year the government scrapped a regulation on minimum domestic airfare pricing, which effectively protected Aerolineas Argentinas from low-cost competitors. With the anticipated arrival of further competitors, including Norwegian Air, Lasa, Jet Smart, and Sky among others, Argentinians will be able to travel throughout the country for lower fares without necessarily having to change flights in Buenos Aires, an annoyance for many that was common until relatively recently. For instance, in October several airlines requested licenses to operate a total of 792 new domestic and international routes. To accommodate the growing number of flights, the government has also invested in expanding available airport infrastructure throughout the country. Although Aerolineas Argentinas has made some adjustments to be more competitive, including the procurement of newer and more efficient aircraft, and the creation of a hub in Cordoba (ODB) to handle new flights, the working-relationship between the airline and the government is strained by labor-disputes and the replacement of two CEOs since the start of Macri’s administration.

Bearing in mind that Argentina’s economic hardships are undermining Macri’s reelection prospects, criticism against the open skies policy could potentially translate in a partial turnaround following elections in October 2019. Although a complete reversal of airline deregulation is highly unlikely, a new government headed by a “Peronist” politician, if not Kirchner herself, could potentially set up new barriers to prevent private enterprises from operating further routes and raise minimum prices for domestic flights. Pointing in this direction, Kirchner and other figures in the opposition have seemingly exploited a series of incidents and scandals involving the concession of new routes.

For example, whilst Avianca and Flybondi were among the first players to enter the Argentinian market following deregulation, these companies were suspected of dishonest dealings with governing officials in March 2017. This is due to the presumption of conflicting interests, given ties between the management of the companies and President Macri’s inner circle. While no sufficient evidence was gathered to prove any wrongdoings, a local prosecutor attempted to indict the president on the basis of corruption allegations. Kirchner and her allies promptly labeled this development as “the low-cost affaire”, accusing Macri of abusing his influence to benefit allies close to his government. She further stated that with the liberalization of Argentinean skies to broad competition, “nothing goes in Aerolineas’ way, and everything in Marci’s”.

In addition, leaving aside the issue of adding strains to the national carrier, pilots and unions in the sector (APTA, APA, UPSA, UALA, APLA, ATCPEA, ATEPSA) have persistently denounced low-cost airlines for a number of alleged safety-related concerns, the perceived lack of infrastructure to meet a rapidly growing number of airplanes in the sky, and the purported deterioration of privileges afforded to airline employees. Another point that draws criticism is the use of El Palomar’s military airport (EPA) – located in the greater Buenos Aires area – for commercial flights. Opposition politicians have expressed that the surging turnout of planes will have damaging environmental consequences and deteriorate the quality of life of the people living in the vicinity of the airport. Given that El Palomar’s military airport operated as a clandestine detention center in the late 1970s and early 1980s, others have argued that the place should not be used for commercial operations.

In all, these grievances have often triggered protests and strikes leading to flight disruptions. On September 27 unions in the air sector adhered to a national strike called by the General Confederation of Labor (CGT), the largest union in the country, grounding more than a hundred flights. Similar incidents transpired on October 13, November 2, and November 8. With this in mind, and taking into account the political capital that elements in the opposition have invested in supporting these industrial actions, a change of government could signal the end of Argentina’s open skies policy. In the meantime, these concerns will likely motivate private enterprises to request new routes and expand operations while authorities are likely to acquiesce and support their endeavors. 

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