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Viva Air's Bewley talks:
While most airlines are still working to recover capacity to pre-Covid-19 levels, South American low-cost carrier Viva Airlines already has built back well over pre-pandemic levels. The carrier now is looking to further expand its international footprint, boosted by some new aircraft coming online, and build its marketshare in South America. Viva Air CFO Jason Bewley spoke recently to Michael B. Baker about why he thinks LCCs are poised to become a bigger presence in South America.
BTN: What does Viva's network look like today?
Jason Bewley: We're two airlines, Viva Air Colombia and Viva Air Peru. Our main hub in Colombia is Medellin, and we also have hub activities in Bogota and Cali. In Peru, Lima is the hub, and we fly between Lima and Bogota and Medellin, but we also fly between Bogota and Medellin to Mexico City and Cancun, and Medellin to Miami and Orlando. We are 21 aircraft, soon to be 22, all new aircraft, a combinations of Ceos and Neos, all Airbus A320s, and we have eight more Neos coming next year. Today, in the fourth quarter of 2021, we are about 57 percent bigger in Colombia than we were two years ago, and that's a pretty unusual story, because most airlines are still struggling to get back to pre-Covid capacity levels. That's a story about LCCs in general down here. In South America, most LCCs today are larger than they were pre-Covid. It's a matter of the market really starting to adapt and the business model starting to grow, because it's been dominated by legacy carriers in the past.
BTN: What's your aircraft layout?
Bewley: It's a one-class configuration, 188 seats. It's very similar to Spirit or Frontier. We have a slightly more dense cabin than they do, a couple seats denser than pretty much any low-cost carrier in the world, but it's essentially the same. Some rows have more legroom, like the exit rows and the rows in the front. With some of the Neos coming in starting the middle of next year, we'll have extended range. We're going to be buying the additional [maximum takeoff weight], which allows it to take off with more fuel, so that will buy us additional range, so we can go deeper into South America and North America. With those longer-range aircraft, we're going to put reclining seats on the front, about a third of the aircraft, as an option. It's an upsell, but we're still a one-class configuration.
BTN: What are your busiest routes at the moment?
Bewley: During tourist season, which starts here in another month, our most frequent route is Bogota-Medellin. It's both business and tourism, and we have connections in both places. The domestic network in Colombia is fairly well built out. A lot of our new aircraft will be focused on international expansion. We see Viva as perfectly positioned between the two continents. If you look at Copa, which is not an LCC but a fairly well-run airline with efficient costs, they do a good job connecting North America and South America through Panama. We see ourselves being in the same kind of position to do that, being positioned in the northern part of South America in Colombia, but with two advantages: We're a true LCC, and our costs are much lower than legacy carriers, and we have a domestic network, so not only can we bring you from North America to Medellin, we can connect you to one of many, many cities within Colombia. That's unique, because within Panama, there isn't really a domestic network. We see ourselves as the Copa of [ultra-low-cost carriers] and it's a unique play, because if you look around the world, there's no ULCC that sits perfectly within two continents, able to reach into both. With the new Neos coming in, we can reach as far north as Toronto or as far south as Buenos Aires and Santiago. If you look at JetSmart, based in Chile, or Sky, based in Chile and Peru, they fly the same planes we do but cannot reach into America, essentially.
BTN: Do you have an estimate of your mix of business travel versus leisure?
Bewley: We're focused on cost-conscious consumers, whether it's a tourist or a business. We have business passengers who fly us but don't have a way to identify that passenger specifically. You can look at patterns and how long they stay at a place, but we are heavily leisure. At the same time, I would estimate that somewhere between 20 and 30 percent of our customers travel for business. It could be a small business owner or a lawyer who chooses Viva out of convenience or price. We may not offer the business class and lounge access our competitors do, but we have new aircraft and one of the best on-time records of any airline in the world, certainly here in Latin America. Our competitors [both Latam and Avianca], it's no secret, are in Chapter 11 and are restructuring. They're talking about going more toward the ULCC model, and in one case, they're embracing that model. If you fast forward a few years, a lot of the capacity in Colombia here will be dominated by ULCC or LCC configurations. I don't see business-class flying much between intra-domestic cities in the future.
BTN: How is demand recovering in South American markets?
Bewley: Colombia and Peru both suffered one of the longest shutdowns in the world. I think the only longer shutdown than Colombia was Argentina, just by a little bit, but we were shut down effectively from April to August 2020. We really did not have a good visibility as to what the recovery would look like. It has surprised us on every front. We have come back faster and stronger across the board not just in terms of capacity but in terms of pricing power. Where we sit today, we are 57 percent in Colombia bigger than we were in 2019, and our planes our full. We're running load factors similar to 2019 or higher, so the demand is there. Clearly, it's a price-conscious consumer. The economy is still coming back from Covid, so price is king right now, and that's where LCCs have taken advantage of the situation. If you look at Colombia pre-Covid, Viva had about a 15 or 16 percent marketshare in the Colombian market. Today, we're around 25 percent. The market is dominated by three carriers today, with Avianca still the largest at 50 percent, then us and Latam in the mid-20s. If you go back to pre-Covid, Avianca was more than 60 percent, so we've gone from a market that was dominated by one carrier to one that's more shared by three carriers. In South America in general, Avianca and Latam have continued to shrink because of the restructuring, and LCCs have stepped into the void to offer what the consumer wants: a cost-focused product, a safe product and something that's on time.
Until we see restrictions gone, you're going to see international travel muted somewhat. When we saw the restrictions in Peru go away, where they had some really restrictive rules in place in terms of quarantines and tests, we saw an immediate spike in bookings. They have since put some more restrictions back in place, but they are more reasonable. We do believe there will be a major flow of international traffic as the borders are opened up fully and the restrictions taken away, which will help business travel customers as well.
BTN: What's your distribution strategy? Are you largely direct, or do you work with agencies and global distribution systems?
Bewley: All of the above. We are very much like our ULCC competitors in that we prefer direct booking, which is our lowest-cost distribution channel, and we have the most control of it, but we recognize that we are a Colombia-based carrier trying to do business in the United States, Mexico and soon other countries like Chile and Argentina. When you start to go into new markets and go up against competitors who are more well-known, like Spirit, obviously having distribution is key, so we do GDS, and we work with the online travel agencies.
BTN: Do you sell different fare types?
Bewley: It's like any other low-cost carrier. We have one basic product, and depending on when you buy that seat, prices will go up as the flight approaches. With ancillary costs, we do not at this time moderate those based on demand. Some of the more sophisticated LCCs like Spirit do that, so if you have a heavily booked flight, their bag fees may be more expensive than, say, the opposite direction on the same day because of demand. We will be rolling that approach out over time, as it's obviously a complex pricing model that takes IT solutions to do it. We will get there, but today, all of our ancillaries are a fixed cost.
BTN: Does Viva have a loyalty program?
Bewley: Not as of yet. We have recently rolled out the new Viva credit card which has advantages to the consumer in terms of discounts and cash back, but not a traditional program with points and miles. That's something we are looking at and studying, and I would not be surprised if we do something on that.
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