Low-Cost Airline Wannabe Has Plan for Costly ArgentinaBy
Flybondi sees government eliminating price floor within a year
Carrier to get $75 million from U.S. private equity fund
The serial airline entrepreneur trying to launch Argentina’s first low-cost carrier is betting the government will deregulate the industry enough to make his venture viable. And if it doesn’t, he’s got a back-up plan.
Julian Cook, 43, chief executive officer of Flybondi, said he’s been told by Tourism Minister Gustavo Santos that price floors for airlines will be scrapped within the next year. But in Argentina, regulatory changes often take longer than planned and so Cook is ready with a few tricks to get around the restrictions, like setting up a members-only club or throwing in a free hotel room with the cost of a ticket.
“Don’t get me wrong -- I want these to be removed because at times of the year and for special promotions, I want to be able to offer fares at $10,” he says. But the government “is saying to us that if we want to do anything creative, they’re not going to try to find out exactly how we’re doing it.”
Argentine President Mauricio Macri, who swept to power in an election last year on promises of ending Argentina’s exile from international capital markets, is slowly opening up long-closed sectors as he tries to pull the nation out of recession. Doing away with minimum prices that airlines are required to charge would likely boost competition in a market that’s dominated by only two big players: the state-owned Aerolineas Argentinas and Latam Airlines Group SA.
The Tourism Ministry said the minister wasn’t available for comment because he was traveling. The government has never had plans to eliminate the minimum price, a Transport Ministry representative said.
Cook, who previously founded Fly Baboo SA, a regional Swiss carrier that was acquired by Darwin Airline in 2010, thinks he can offer fares for a third of what his bigger competitors charge and, in the process, snag about 20 percent of the market within five years.
He’s got some important backers betting he’s right. Michael Cawley, the former deputy CEO of budget airlines Ryanair Holdings Plc, and Montie Brewer, the former president of Air Canada, are among his investors, although they’ve only put up about $1.5 million. Flybondi is on the verge of announcing a $75 million capital injection from a U.S.-based private equity firm, Cook said, declining to identify the group before an official announcement is made next month.
The airline expects to start small, operating 12 domestic routes by September out of the El Palomar military airport 18 kilometers (11 miles) west of Buenos Aires. It has plans to boost domestic routes to 40 within five years and start international flights to Chile, Uruguay and Brazil by 2018.
Other low-cost carriers are also eyeing the Argentine market. Norwegian Air Shuttle ASA is evaluating plans for a base in Buenos Aires with flights from cities including Oslo, London, Paris, Madrid and Barcelona as the next phase of its long-haul, low-cost expansion strategy.
The National Civil Aviation Administration will hold a public hearing on Dec. 27 in which airlines will outline plans for new routes in Argentina.
Argentina “is probably one of the last sizable countries in the world that doesn’t have a low-cost airline,” Cook said in a telephone interview. “My view is that in the next 12 months, the floor will be removed. The government says it doesn’t want to go from a completely regulated market to a completely open market overnight. They want to do things step by step.”