An Avianca aircraft before takeoff from El Salvador in February 2022. JOSE CABEZAS (Portal)
The cascade of complaints from travelers who are hit by Avianca’s poor service on a daily basis is just one sign of the bad times Colombia’s emblematic airline is going through. Adding to the images on social media of seats not reclined on international flights, or groundless cancellations on the horizon, is the stranded deal with Viva Air, a low-cost carrier whose integration two regulatory bodies say would violate free competition.
Civil Aeronautics, the government agency responsible for the aviation market, said Thursday that the current merger application process is being dropped. A news that implies a partial respite for the interests of the two interested airlines, since the regulator had rejected the operation in a first resolution in which it expressed serious objections to a union that would monopolize 62% of the total domestic market and more 90% on about thirty routes.
It’s a last-minute decision that opens an unexpected chapter. The arrival of Sergio París at the head of Aerocivil on April 27th and the hesitation in the statements made by the Ministry of Transport arouse quite a few concerns among various players in the sector.
However, the matter has a separate duel that will be fought before the Superintendence of Industry and Commerce (SIC). The company, which also ensures free competition, announced in early December that it would open an investigation into Avianca and Viva for allegedly moving forward in part with the aforementioned merger without getting the green light from Aerocivil.
For former Superintendent Jorge Enrique Sánchez, who is opposed to the measure, Avianca even made the acquisition public before informing the authorities: “The agreement unifying economic rights has already been signed, without anyone’s control or oversight,” says he.
Analysts stress that the merger is in fact part of a more ambitious plan embodied in the creation of the new Grupo Abra Limited as a further step in the regional struggle with Chile’s Latam.
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As announced in a statement on May 11, 2021, Abra will combine Avianca and Gol, Brazil’s third-largest airline, with 250 aircraft and flights in Latin America, the United States and Europe. According to the company, the operation involves the acquisition of “100% of the economic rights” of Viva in Colombia and Peru: the new consortium would absorb Viva’s dividends.
The Colombian company reiterated to EL PAÍS that the legal formula under which the merger proceeded guarantees that Avianca will not exercise any political or voting control over Viva until the Colombian authorities approve the transaction. They also regretted that the number of “business splits” had been underestimated by the regulator in its Statement of Objections.
Sánchez, on the other hand, insists there has been a violation. As evidence, he cites that on April 29, 2022, the appointment of Irishman Declan Ryan, son of the founder of the “low-cost airlines” Ryanair and majority shareholder of Viva Air, was announced to the board of Avianca.
Despite the fact that the European businessman announced in November that he was leaving his professorship, Sánchez says he has more arguments. “The Superintendency’s decision contains ample evidence that these two companies long ago ceased to operate as independent competitors and that Avianca exercises joint control.”
For its part, the Aeronautics report questions Avianca’s arguments that a financial crisis at Viva motivates the takeover, pointing out that this fact is not proven with solvency. Avianca argues that the debate has focused on corporate concentration, which they call a “myth,” rather than the risks that liquidating Viva Air, a company that has been in the red in a decade of operation, would entail has thrown. From Avianca they deny that there is a monopoly: “In Colombia there are 13 airlines that offer domestic flights and more than 30 if we add international lines,” the airline replied to a survey by this medium.
Behind this chapter in the history of the second oldest commercial airline in the world, founded in 1919 under the name SCADTA, there are some behavioral patterns. The lawyer José Emilio Archila, legal representative of the low-cost operator Ultra, who opposed the merger with a complaint before the SIC, recalls that at the beginning of this millennium, when he was Superintendent of Industry and Commerce, he was against it Objected was Avianca’s request for an alliance with the missing Sam and Aces.
His position cost him disagreements with then-President Andrés Pastrana’s Development Minister (1998-2002) and led to his resignation. “The consequences of this integration have been disastrous for the country because it has basically fertilized the ground for the creation of a monopoly in a sector where it should not exist,” he said in a phone conversation. Also former Presidential Advisor for Stabilization Iván Duque (2018-2022) points to the dependency on air transport in a country that suffers from railways and has one of the worst road infrastructure networks in the region, according to reports from organizations like the World Bank.
Pablo Felipe Robledo, Superintendent of Industry and Commerce during the Santos government (2010-2018), recalls the avalanche of complaints he received from suffocated travelers who had no alternative to the “arbitrary prices” of the fares that Avianca imposed on the intermediate cities where it was the only operator – as it is today on about twenty routes.
“We had the thesis and the clues,” says Robledo, “that predatory and competitive prices – dumping – had occurred. For example, in Leticia, Armenia, Popayán, Neiva or Riohacha, people saw how the prices were high when there was no competition and very low when there was competition, and they saw how other airlines changed the routes due to the behavior of Avianca gave up.
Robledo regrets not having completed the investigation: “It is part of the same scheme within a market with few companies, not few barriers to entry and harmful outcomes for users.”
Sánchez pulls the thread of the story, recalling that Avianca has acquired companies like Costa Rica’s Lacsa, Ecuador’s AeroGal, and Colombia’s Helicol: “His corporate power has given him free rein to behave like an idiot in the market, with his users and with the authorities. For the past three decades, she has been a compulsive buyer of competing companies. The lawyer filed a class action lawsuit in the Administrative Court of Cundinamarca, ordering it to stop the operation.
One pilot, who asked not to be named because he feared reprisals, says approving the merger would deepen Avianca’s dominance on several fronts. He mentions the overwhelming control over landing and take-off windows at airports: “The ‘slots’ at major city airports are absolutely monopolized by Avianca. If they stay with those of Viva, the restriction would be devastating for the other companies. Avianca responds that one of the proposals they have put to the authorities to unlock the process is to have “enough ‘slots’ at El Dorado Airport (Bogotá, which is perhaps the only barrier to entry that exists for third parties to compete) to return”.
Despite the fact that Avianca’s policies have ensured that Viva retains its name as a subsidiary, more than one source consulted is anticipating the breakup of a project that was innovative to many when it first arrived a decade ago. The company managed to concentrate 20% of the market, knew how to get through the crisis caused by the pandemic without any help or bailouts, and was in the process of expanding its operations with the opening of flights to Buenos Aires.
Despite everything, Avianca officially insists that Viva’s financial situation is “apparently deteriorating” as the vast majority of its income comes from a devalued peso, while its “expenses, such as fuel and aircraft rental, are in dollars”. And he adds: “The only two low-cost airlines that are profitable in the world are in Mexico.”
Avianca’s image, which employs 14,000 people, has seen many ups and downs recently. After overcoming a financial restructuring process in 2021 and escaping US bankruptcy law due to $5 billion bleed through the quarantine season, discontent in Colombia is evident today.
Other recent episodes, such as the brutal industrial disputes involving pilots and the bitter scandals surrounding illegal wiretapping allegedly ordered by senior company officials to access union members’ cellphones, have only revived the worst spirits of one of the continent’s biggest airlines. A giant that has been avoiding turbulence for 104 years.
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