LatinAmerican Post summarized what it means for the Superintendence of Transportation to take control of the Colombian low-cost airline after the suspension of its services. We also show what would be the consequences of a monopoly between Avianca and Viva Air.
Photo: Viva Air
LatinAmerican Post | Christopher Ramírez Hernández
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Leer en español: Viva Air: ¿Qué pasará con los viajeros ahora que el gobierno colombiano tiene el control?
On February 27, the low-cost airline Viva Air unexpectedly decided to immediately suspend all its operations in Colombia , unleashing chaos in the Andean country. Dozens of people at the main airports demonstrated in search of answers to the loss not only of money but also of time that this situation generated.
The decision, according to the main executives of the company, was derived from Viva Air's inability to solve a series of crises that have put the company on the brink of bankruptcy. In addition, they argued that the responsibility falls on the Civil Aeronautics, due to the refusal of this state entity to allow the absorption of Viva Air by Avianca, one of the oldest and most important airlines in that country.
However, in the midst of what was an unexpected turn in this story, it was precisely the State that decided to take charge of this situation with the Superintendency of Transport. This institution took control of the company, although the directors of the airline still have a say in the decisions to be made.
According to official information from the Superintendency, Viva Air had until March 8 to present a Recovery and Improvement Plan to explain the company's internal strategy to "overcome the critical situations that gave rise to the imposition of the extent".
What does it mean for the State to take control of Viva Air?
The first thing to bear in mind in this situation is that by taking control of Viva Air, the Superintendence of Transport will be the entity through which each of the decisions that the company intends to execute will pass. This includes measures that make it possible to preserve the liabilities that exist to date. In a few words, it means that Viva Air must ensure that the money collected, both from the sale of single tickets and from ticket holders or charter flights, is shown as current debts in its accounting. In this way, it is about ensuring that the company manages practices and tools to return money to people who have already purchased any of its services.
“Unless Viva goes to reorganization or liquidation, the SIC, by exercising jurisdictional functions, can give Viva payment orders, and the airline is obliged to pay them immediately. In fact, the first precautionary measure against the airline has already been given: the SIC ordered the immediate return of the money for the air tickets to a passenger, or their free relocation on a flight with another airline to cover the air route. ”, indicated Jorge Sánchez, former consumer and competition delegate of the Superintendence of Industry and Commerce (SIC) in conversation with the newspaper El Colombiano.
As for whether you can buy flights with the airline, this is an option that is not available at the moment, but that could be viable in the event that Viva Air enters into a business reorganization process. This measure, which was born as a special aid for companies affected by the economic crisis derived from the COVID-19 pandemic, would allow Viva Air to reorganize its debts and agree with its creditors that payment be made within a period of no more than 15 years. In this way, they could free up a large part of their cash flow and thus be able to continue with their functions.
You can also read: Latin America in Short: Crisis at Viva Air | Diplomatic Crisis Between Petro and Bukele
What Would Happen if Viva Air Merges with Avianca?
It should be remembered that all these state efforts, fully supported by the Ministry of Transportation on behalf of the Colombian Government, obey a need to not allow Vivar Air to join Avianca. It is because the implementation of a monopoly, according to the Civil Aeronautics, "in terms of free competition, would mean a setback and a return to levels that were not seen in the country more than seven years ago."
The figures speak for themselves: according to this entity, Avianca and Viva Air participate in 59 air routes within Colombia, this is almost 94% of national air traffic. In addition, of those almost 60 routes, in 29 the participation of both companies is coincidental. In this sense, in the event of the union, at least 16 national routes would be monopolized. According to examples cited by the digital media Cambio, this possible reality would make Avianca go from 46% to 100% control of the air market on the Barranquilla-Pereira route. The same would happen on the Bucaramanga-Cartagena route, in which Avianca currently has 57% of the total market.
This, of course, would be almost disastrous for the free competition of Colombian airlines, as it would run the risk of users falling victim to impetuous increases in air ticket prices, as well as logistical problems in the frequency of flights or even the cancellation of some services.
Now, with the reduction of the free market in this sector and with it prices for users, companies such as Ultra Air or Wingo that make up the low-cost scheme that for the last 10 years have brought good revenues to the air market in Colombia.
As explained by the president and founder of Ultra Air, William Shaw, through a statement issued in August 2022, with the low-cost scheme, the country has gone from mobilizing 14 million people in 2011 to more than 30 million in 2022. It is a reality that could be affected by the merger of Avianca and Viva Air. “We are already suffering from the dominant position in the use of infrastructure, in the concentration of counters, boarding rooms, parking positions and slots (time reservation to make a journey) in air terminals such as Bogotá. In the new scenario, this dominant use could worsen,” Shaw concluded.