Sky Airline’s Price War Paying Off as It Snaps at the Heels of Latam

  • Airline’s domestic market share rose to 27% in first 4 months
  • Sky looking to airports to cut boarding fees as prices tumble

Sky Airline is on track to reach its target of 5 million domestic passengers in Chile before 2020 as the low-cost airline seeks to take market share from Latam Airlines SA, according to Luis Felipe Ross, the carrier’s recently appointed chairman.

While a price war in the local market has driven down costs for consumers and boosted demand for flights, there’s still room to grow. Local authorities could help the trend by lowering boarding fees charged by airports that can account for a significant part of ticket prices.

"It would be ideal to set up a dialogue with authorities about boarding fees," Ross said in a telephone interview. "Chile has relatively high fees and lowering them could get even more people to fly."

Created 14 years ago, Sky’s tactic of cutting prices is working as it muscles Latam and other rivals out of an ever larger share of the market. Passenger traffic at Sky rose 12 percent last year and continued to rise in 2017, boosting its market share to almost 27 percent in the first four months from just 18.8 percent seven years earlier. Latam saw its share shrink to 71.9 percent from 77.4 percent over the same period.

Sky transported 3.2 million passengers last year, of which 2.8 million were in the domestic market.

Boarding Fees

Boarding fees give Sky scope to cut prices further.

Chile has the highest such fees in Latin America after Ecuador and Argentina, according to a study by SCL Econometrics commissioned by Chile’s Civil Aviation Authority. Local airports charge between 4,500 pesos ($6.67) and 5,900 per passenger, while Ecuador charges as much as $21 and Brazil charges as low as $2.80.

As Sky expands, it will receive six of a total of 18 Airbus A320neo it has ordered through leaseback operations next year. The rest will be received in following years. The company doesn’t plan an IPO anytime soon, but will consider entering capital markets in the medium or long term as funding demands arise, Ross said.

Sky was founded in 2002 by Jurgen Paulmann, brother of Horst Paulmann, the billionaire founder of retailer Cencosud SA. In 2014, after Jurgen died, his son Holger took over as chief executive officer of the carrier and proceeded with a restructuring in which he cut the workforce to about 1,700 from more than 2,300. He also brought in Garret Malone, a veteran of European low-cost carrier Ryanair Holdings Plc, as chief operating officer, to implement the discount strategy.

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