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Latin America: Increase in aviation taxes and fees hampering growth in region

Opportunistic governments in Latin America that see air travel as an easy tax target, resulting in higher taxes and fees, have led to hindered growth in the region’s aviation sector.

International Air Transport Association (IATA) Regional Vice President for the Americas, Peter Cerda, cited Chile as an example. Chile charges $1 per passenger that goes to the government’s aid initiatives in Africa and other similarly developing locales.

This fee affects tourism-related revenue by as much as $20 million by dampening travel to the region.

In stark contrast, Cartagena, Colombia lowered its airport fees from $92 to $38, resulting in a 26% rise in international passengers and a 38% bump in tourists, reported Cerda, citing research made by IATA.

“Air transport is not an industry of the rich and it shouldn’t be seen as a target for luxury tax,” Cerda said from Geneva.

“The economic value that robust and sustainable connectivity creates far outweighs the short-term benefits that can be obtained through taxation,” he added.

Latin America officials also apparently do not have an eye out on the future when it comes to airport infrastructure. Cerda said hastily made infrastructure projects are given priority over airports, which can quite some time to plan and build. Additionally, only a few Latin American governments have coherent aviation regulations.

However, Cerda stressed that Panama has established a world-class airline in Copa and what he described as “the best hub” in the region with Tocumen.

Earlier this year, Brazil ratified legislation that lets airlines charge for checked bags, but lawmakers are fighting to get the law repealed. The public had expected airfares to be lowered after bag fees were initiated. However, this has yet to materialize, a point that has invited criticism for the new policy.

Cerda said that it would take time for airfares to drop, as they have in Europe and the United States, where bag fees have been implemented for quite some time now.

The IATA official remarked that Brazil also levies airlines a fuel surcharge that requires the industry to pay $600 million every year over the cost of fuel.

“Brazil, an oil-producing country, charges airlines as if it imports oil,” said Cerda.

But the most besieged country in Latin America – Venezuela – has nearly lost all of its connectivity. The government has declined to let airlines repatriate $3.8 billion in revenue earned in the country.

Political unrest and economic troubles have muffled demand. Back in 2014, 24 IATA member carriers served Venezuela but only six remain. International traffic has plunged by 65% since 2013.

As a result of all the issues the country is facing, Cerda disclosed that IATA is shutting down its Caracas office next month and transferring its Venezuela operations to Panama.

But all is not lost in Latin America, Cerda optimistically announced.

Economies in the region bannered by the largest, Brazil, are on the mend after years of recession. This year, airlines piled on $167 billion to the region’s economy in aggregate this year.

Cerda divulged that Latin American airlines declared $700 million in profits in 2017, and are expected to report $900 million next year.

LCCs are growing and offering more connectivity. The demand for air travel is increasing and would double by 2034.

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