Viva Air or the dilemma of small low-cost: merge or disappear

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Last week, after months of waiting, Aerocivil, the Colombian aviation authority finally approved the integration of low-cost Viva Air and Avianca, the national carrier. However, this decision did not have the expected result.

After the low-cost airline decided to cease operations last February and because the approval was subject to a number of conditions, Avianca, the national carrier and former principal, reassessed the feasibility of the project.

Avianca has doubts

After learning of the Colombian aviation authority’s decision, Avianca said next steps are being reviewed. Avianca argued that Viva Air no longer has the same capabilities – route network, aircraft, personnel – as before the temporary suspension of operations.

In addition, the Colombian regulator’s action paves the way for appeals and reconsideration not only by the two airlines involved, but also by other interested parties in the process: Latam, Wingo, Ultra Air and Aerolíneas Argentinas. .

Viva Air: a textbook case on the low-cost crisis

Viva Air is proof that the profitability of airlines with few planes is almost nil. The industry needs economies of scale, it makes no sense that there are airlines with three, four or five planes, because they start to be efficient from 25, 50 or 100 planes in order to reduce costs.

The positive aspect is that when cheap tickets come on the market, prices become more elastic with respect to demand, allowing airlines to generate more demand and therefore more traffic.

But the global economic, political and social situation indicates that the economy will contract and that, in the event of a crisis, the small low-cost ones will go bankrupt. An alternative to avoid this is for another company to buy them out and give them money instead of receiving nothing in the event of bankruptcy. This is their only way to survive, especially in the midst of an inflationary crisis, high interest rates and the endless conflict between Russia and Ukraine.

For low-cost companies, mergers will therefore be the only way to avoid bankruptcies and maintain activity.

Catherine Mills Avatar