ROUTES AMERICAS STRATEGY SUMMIT: The Niche Players: In Search of Change and Niche Success

The smaller independent carriers are seeking to take share away from the larger, consolidating carriers by offering something different in the way of price, product, network, etc. How do these airlines compete in an increasingly consolidating industry (mice among elephants)? Is their nice positioning sustainable? How can they continue to stay independent and profitable?  These were the main discussion points in the second group session at this year’s Routes Americas Strategy Summit in San Salvador, El Salvador.

The session, moderated by Michael Bell, a partner at Stuart Pearce, included three senior airline delegates:  Juan-Emilio Posada – executive chairman, VivaColombia; Capt Jagmohan Singh – chief executive officer, Caribbean Airlines and Albert Kluyver – chief executive officer, InselAir.

The aviation industry has historically proved that niche players can successfully compete against their larger rivals, but as VivaColombia’s Juan-Emilio Posada noted during this session, there are a number of factors that work against them.  In the low-cost carrier’s case it is simply the complexities of flying into foreign markets and Posada said there remains more potential for domestic destinations in Colombia than on international flights from the country.

“One major problem is the taxation system, but I'm not anti-government, simply pro-passenger,” he explained.  “There is no point differentiating domestic and international flights in Latin America and the Caribbean.  It costs the same to fly passengers from say Bogota to Quito as it would to fly them to London.  This is undermining business in Central America.  We need a regime like Europe where everything in the region is treated as a domestic service.”

The ultra low-cost carrier has made notable strides after entering the Colombian market and data shows it is helping to stimulate demand across domestic city pairs.  On the routes that it has no competition, traffic is growing at a rate of around six per cent, while on those routes it faces competition and has established a marketshare of more than 12 per cent, it is seeing traffic grow 40 per cent. 

“The market is very price elastic and people are eager to fly more or take to the air for the first time.  We are now even seeing the bus companies complaining to the Government that we are taking passengers away from then,” said Posada.  So how does the airline take these key decisions on the markets it should serve? "We look at where we're likely to make the most money, & that's where we go,” he added.

Caribbean Airlines has been involved in its own consolidation and emerged in a much more leaner and competitive form.  Capt Jagmohan Singh described the airline as low-cost carrier, but acknowledged it edge much closer to the new hybrid business model than the traditional low-cost form of the past. 

“Our prices are now much lower than five to ten years ago.  You have to be a low-cost carrier today due to the strong competition you now face in the industry.  You have to be competitive in everything you do.  It is about knowing where you want to be and follow the roadmap to achieving that,” he said.

Singh understands some of the issues the speakers from the Strategy Summit’s first session are facing with their mergers following its own experiences with Air Jamaica.  He said the brand had an emotional attachment with passengers in some markets, they realise that they must replace this emotional connection with something positive. “You can provide the loyalty factor and bring them across to your way of working,” he said.

At Curacao-based InselAir and its new Aruba-based division, the main problem is seasonality with demand.  The two businesses currently have a combined fleet of 12 aircraft but are adding five more to support a growth which will include new links from Aruba to Miami, USA and Valencia, Venezuela from April this year.  “Our major problem is operating for the full year when we know that seasonality issues will impact our operations,” said Albert Kluyver.  “We have eight good months and four bad months every year.”