It’s been more than a year since Avianca first announced it was buying low-cost operator Viva Air, and now, the deal is dead… as is Viva. After many twists and turns, the government tried to extract too much and Avianca finally decided to just walk away. This should mark the end of Viva entirely, though stranger things have happened.
The Colombian market has seen what can only be described as whiplash in recent years as low cost operators have started and then failed. Just take a look at this chart showing domestic seats over time.
Domestic Colombia Departing Seats by Month
After being fairly steady in the 2.5 million monthly seat range, seats exploded to the point where they crossed 4 million as recently as this January. Then the wheels fell off.
Viva was the third largest domestic airline in the country after Avianca and LATAM. With the government waiting so long to determine whether or not to allow Avianca to acquire the money-losing airline, Viva had no choice but to suspend flights at the end of February. It went from having 17 percent of domestic departing seats in January to none now. Another hopeful low-cost operator Ultra Air lived an even shorter life, suspending its flights at the end of March. Together they had more than a quarter of the market.
This shift has dropped domestic seats in May by 18 percent versus January, and well, you can imagine what it did to market share…
Domestic Colombia Seat Share May vs January 2023
Avianca has stepped up with more capacity and has grown its position to now control more than half the seats in the domestic market. This is what all the regulatory hemming and hawing was supposed to prevent, but instead it just crushed any hope of Viva having any future.
Just a few days ago, Colombia’s regulator Aerocivil put out Resolution 873 finalizing the conditions it would impose upon Avianca if it acquired the corpse of Viva. It gave Avianca 5 business days to firm up its plans, and Avianca firmed those up by saying “no thanks.”
What was so problematic? Well, I invite you to read through all 230 pages of Spanish legalese, but in short there were seven conditions imposed upon Avianca if it decided to move forward.
A note: please have mercy for anything I may have misinterpreted. This is entirely from my own Spanish skills and some help from Google Translate, so it likely isn’t perfect.
- Reaccommodate all Viva passengers on new flights at no charge if their original flights won’t operate OR refund them
- Cut the yield by 10 percent in markets where Avianca and Viva combined have a monpoly
- Using the Viva brand, labor agreements, and model, keep service for three years on all routes where Viva was the only operator or where Viva and Avianca combined had more than 75 percent share
- Return 33.6 average daily departing and 31.4 arriving slots at Bogotá El Dorado Airport for summer and 47.9/67.7 in winter
- Keep all existing Viva interline agreements for three years
- Enter into and maintain non-exclusive interline or codeshare agreements with SATENA, the air force-owned airline that serves many smaller Colombian cities
- Return a frequency in the Colombia-Argentina bilateral to be distributed to another carrier (if one wants it) since Avianca now has the monopoly
That’s quite the list, and really, it’s crazy to think Avianca would agree to it. We have to start by thinking about Avianca’s motivations here. The airline obviously would most want to take over Viva in order to get a hold of its slots in Bogotá. That is a constrained airport, and it’s not easy to grow. So, if Avianca can buy Viva and get more slots, it’s willing to deal with other conditions.
The problem is, Avianca has to give back a lot of slots, and unless my math is wrong, it looks like more slots than it would have acquired from Viva in the first place. This just seems so strange, so I have to assume my math is wrong. But the reality is that even in a best case scenario, it’s not gaining much. Avianca says as much, noting it had offered to give back 75 percent of Viva’s Bogotá slots, but Aerocivil “demanded the return of such a number of slots that would not allow Viva to base a single aircraft at the country’s main airport efficiently.”
At the same time, some of the restrictions it would have to accept are pretty onerous. Cut yields on markets where there’s now a monopoly? Keep Viva as a separate brand to serve markets that are now overly dominated by Avianca? That’s quite the drag.
This isn’t a perfect map, because I didn’t get into the details of exactly when the sample period is or which routes meet the threshold, but it’s probably something like this that would have to be maintained:
In other words, this isn’t a tiny operation. It would likely end up being a significant burden for Avianca, but it was a burden that might have been worth it for enough in exchange.
Remember, Viva hasn’t flown for nearly 3 months, and it becomes less and less valuable every day. It makes no sense for Avianca to agree to these demands, so instead it can just go its own way. Maybe someone with a head injury or painfully low IQ will decide to buy the remains of Viva, but more likely than not, this will just create opportunity for organic growth for those airlines that remain flying in the country.