Economy

After Past Failures, Peru Plans New State-Run Airline Built On Ryan Air Model

Officials in Lima are hoping to start a low-cost, no frills airline to get lower-income Peruvians off of buses and into the air. If history is a guide, there are few guarantees the ambitious state-run airline scheme will work.

Few Peruvians can afford tickets on the country's private airlines (Santi LLobet)
Few Peruvians can afford tickets on the country's private airlines (Santi LLobet)
Luis Felipe Gamarra

LIMA -- Accidents, with dozens of people dead and injured. Hundreds of passengers stranded by flights cancelled for mechanical problems. Such were the last few months of TANS Peru, a state-owned airline created in 1963 and shut down in 2005 by the government of then-President Alan García.

TANS Peru wasn't Peru's only failed foray into state-sponsored commercial aviation. Six years earlier, Aeroperú – founded by Juan Velasco Alvarado, a populist general who ruled Peru from 1968 to 1975 – also closed. A deadly accident in the Pacific Ocean, a confusing privatization effort, and losses that reached $174 million annually combined to ground Aeroperú for good.

Its dismal track record, however, hasn't discouraged the Peruvian government – now under the leadership of President Ollanta Humala – from setting its sights yet again on the airline business. Plans are currently underway for a carrier called Aerolíneas del Perú. "We want to see the colors of the Peruvian flag back in the sky," says Julián Palacín Fernández, an aeronautical law expert who put together a feasibility study for Humala's Gana Peru party.

Belly up

Given current trends in the global airline industry, launching a state-run carrier promises to be a tricky venture. According to the International Air Transport Association (IATA), approximately 200 airlines worldwide have gone belly up over the past decade. To survive in the face of volatile oil prices and the global financial crisis, several large airline companies have had to look for strategic mergers: Air France fused with KLM, Delta with Northwest, Continental with United, and British Airways with American Airlines. Latin American mergers include Avianca (Colombia) and TACA (Central America); Gol and Varig (both Brazilian); and LAN (Chile) and TAM (Brazil).

According to Carlos Adrianzén, dean of the economics department at the Peruvian University of Applied Sciences (UPC), the industry is seeing more and more regional or global companies and fewer national airlines. Exceptions are Cuba, Venezuela, Ecuador, Bolivia and Venezuela, which all maintain state-run carriers – at high cost.

Ollanta Humala "can't reinvent the wheel," says Germán Efromovich, president of Synergy, the parent company that controls Avianca and TACA. "He doesn't have to look far to realize that either. Argentina insists on keeping its airline. But it costs a ton of money. Venezuela created Conviasa, and that too costs an enormous amount of money to maintain."

Indeed, in early 2011 the president of Aerolíneas Argentinas, Mariano Recalde, presented the Argentine Congress with a report explaining that the company – which the state reassumed control of three years ago – needed nearly $400 million in public subsidies.

Looking to go "low-cost"

Julián Palacín Fernández, however, stands by the Peruvian government's new airline plan. "It won't be an airline that's propped up by the state. That's been tried before. And it failed," he says. "Private partners will provide all the capital. The state, working through the various regional governments, will take care of all the airport infrastructure."

Palacín says the model to follow in this case is the "low-cost" approach used by companies such as Southwest, a U.S. carrier that is able to offer inexpensive tickets by reducing operating costs to a bare minimum. "In order to reach six million Peruvians who normally can't afford airline travel, we need to imitate companies like Southwest, Ryanair and EasyJet," he says.

Government sources suggest the initial investment needed for the new Peruvian airline would be about $70 million, much of which would be used to rent a fleet of six Airbus 316 jets (156 passengers) and six Bombardier planes (80 passengers). With 12 planes, Aerolíneas del Perú would actually have the second largest fleet in the country after LAN Perú, which operates 31 aircraft. TACA Perú has just six planes.

Palacín – whose brother, Carlos, headed a failed private airline called Aerocóndor – has the support of key members of President Humala's cabinet, including José Luis Castilla, the minister of the economy. Castilla, a conservative technocrat, believes a new state airline is indeed possible. "The formula will probably have to be a public-private partnership because even though the state has a significant amount of money, it's still finite – and the country's needs are enormous," he says.

What the state doesn't have, at the moment, is a true hub for the project. For cost reasons, Lima's main airport, Jorge Chávez, isn't an option. Lima Airport Partners, the company that administers Jorge Chávez, charges too much to make the low-cost model work there. The nearby Las Palmas Air Force Base isn't an option either, since for contract reasons, the state isn't allowed to operate another commercial airport within 200 kilometers of Jorge Chávez.

Grumblings from the private sector

Palacín hasn't figured out a way around the problem just yet, but insists that once a solution is found, Aerolíneas del Perú will be in a position to take off quickly – financially speaking. The aeronautical law expert says the airline could pull in about $50 million in its first year. Within a decade, Aerolíneas del Perú could generate annual revenue of $500 million and enjoy a 40% market share, he predicts.

The numbers don't sit well with private sector representatives like Carlos Gutiérrez, who heads an international airline association called AETAI. Gutiérrez would prefer to see the Humala government scrap the project and use its money instead to help private carriers offset costs involved in certain unprofitable routes. Carlos Canales, the president of Peru's National Tourism Chamber, is also critical of the Aerolíneas del Perú project, saying it could end up bankrupting weaker private operators.

Leading airline LAN Perú, however, says it isn't worried. LAN Perú controls about 60% off the market and generated nearly $760 million in revenue in 2010. Executive Vice President Enrique Cueto has said publicly that LAN Perú plans to stick with its five-year, $700 million-investment plan regardless of how the government's Aerolíneas del Perú project pans out.

Aerolíneas del Perú doesn't yet have an official launch date. But insiders say the government is indeed moving forward with the plan. Pro Inversión, the government's investment promotion agency, plans to have the project mapped out by the end of the year. Only then will the state really know if there are private parties willing to buy into its dream of putting Peru's red-and-white flag back in the sky.

Read more from AméricaEconomía in Spanish

Photo - Santi LLobet

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Art installation "Greetings From Giza" by French artist and photographer JR faces the pyramids of Giza in Egypt

Anne-Sophie Goninet, Jane Herbelin and Bertrand Hauger

👋 你好*

Welcome to Tuesday, where violence erupts after Sudan's military coup, Australia finally gets onboard with climate change goals, and Harrison Ford stars in Raiders of the Lost Credit Card. From Bogota, we also see what the capture of drug kingpin Otoniel means for Colombia, a country long stained by cocaine trafficking.

[*Nĭhǎo - Mandarin Chinese]

💡  SPOTLIGHT

Saving the planet is really a question of dopamine

The elite of the ecologically minded are set to descend on Glasgow next week for the Cop 26 conference on climate change. But beyond debating policy prescriptions, French daily Les Echos explores the role our own brains have on making the right choices for the planet:

Almost every week, a new scientific study alerts us to the degradation of the environment. And yet, we continue not to change anything fundamental in our systems of production and habits of consumption. Are we all suffering from blindness, or poisoned by denial?

In his popular books Le Bug humain (The Human Bug) and Où est le sens? (Where is the Sense?), Sébastien Bohler, a journalist in neuroscience and psychology, provides a much more rational explanation: The mechanism responsible for our propensity to destroy our natural environment is in fact a small, very deep and very primitive structure of our brain called the striatum.

This regulator of human motivation seems to have been programmed to favor behaviors that ensure the survival of the species.

Since the dawn of humanity, gathering information about our environment, feeding ourselves, ensuring the transmission of our genes through sexual intercourse and asserting our social status have all been rewarded with a shot of dopamine, the "pleasure hormone."

Nothing has changed since then; except that, in our society of excess, there is no limit to the satisfaction of these needs. This leads to the overconsumption of food and addictions to everything from sex to social media — which together account for much of the world's destructive agricultural and energy practices.

No matter how much we realize that this is leading to our downfall, we can't help but relapse because we are prisoners of the dopamine pump in the striatum, which cannot be switched off.

According to Bohler, the only way out is to encourage the emergence of new values of sobriety, altruism and slowness. If adopted, these more sustainable notions could be recognized by the striatum as new sources of dopamine reward. But there's the challenge of promoting inspiring stories that infuse them with value.

Take the photo-collage exhibition "J'agis ici... et je m'y colle" ("I'm taking action here... and I'm sticking to it"), a collection of life-size portraits of residents committed to the energy transition, displayed on the walls of the French coastal city of La Rochelle.

Backed by the French National Center for Street Arts, photographer Martin Charpentier may be employing artistic techniques, but he's also tinkering with neuroscience in the process.

Stefano Lupieri / Les Echos

🌎  7 THINGS TO KNOW RIGHT NOW

• Sudan in chaos following military coup: After Sudan's military seized power from the transitional government, defiant anti-coup protesters have returned to the streets of the capital city Khartoum, for a second consecutive day. At least seven people have been killed and 140 injured. Coup leader General Al-Burhan has announced a state of emergency across the country, while the military cut off access to the internet and closed roads, bridges, and Khartoum's airport. Washington condemned the coup and suspended aid, and the U.N. Security Council was expected to discuss Sudan behind closed doors later today.

• Egypt lifts state of emergency in force since 2017: Egyptian President Abdel Fattah el-Sisi, announced the end of a four-year-old state of emergency, undoing powers that had given the government sweeping authority to quash protests, make arrests, search people's homes without warrants, and control everyday life in the most populous Arab country.

• Platforms take down Bolsonaro video linking vaccine and AIDS: Facebook, Instagram and YouTube have removed an anti-vaccine video from their respective platforms posted by Brazilian President Jair Bolsonaro. Beyond blocking the video, in which Bolsonaro falsely linked the COVID-19 vaccine with developing AIDS, YouTube went further and suspended the far-right leader for a week.

• COVID update: The U.S. will launch a new travel system on November 8, imposing new vaccine requirements for most foreign national travellers and lifting severe travel restrictions over China, India and much of Europe. Meanwhile, authorities in northern China are reimposing lockdown, and other emergency measures as COVID-19 infections spread to 11 provinces.

• Australia pledges net zero emissions by 2050: As one of the world's largest emitters of greenhouse gases per capita and a major exporter of fossil fuels such as coal, Australia has finally committed to becoming carbon-neutral by 2050. This is a target already adopted by most nations heading to next week's COP26 international climate conference, but that Australia had so far refused to pledge.

• Japanese princess loses royal status over wedding: Japan's Princess Mako married her boyfriend Kei Komuro, giving up her royal status. Under Japanese law, female imperial family members lose their status upon marriage to a "commoner" although male members do not.

Raiders of the Lost Credit Card: A tourist returned the credit card of American actor Harrison Ford, who had lost it in Sicily while shooting scenes for the latest Indiana Jones movie.

🗞️  FRONT PAGE

"Out of control," titles German daily Süddeutsche Zeitung, reporting on the release of a series of articles by a consortium of 17 U.S. news outlets, called the "Facebook Papers," that reinforce whistleblower Frances Haugen's claims that the social media giant is prioritizing profits over the well being of its users and society.

#️⃣  BY THE NUMBERS

$1.01 trillion

After striking a deal to sell 100,000 electric vehicles to car rental firm Hertz, Elon Musk's Tesla has joined Apple, Microsoft, Amazon and Google's Alphabet in the club of companies that have reached a $1 trillion valuation.

📰  STORY OF THE DAY

What the capture of a drug kingpin means for Colombia

While the capture of Otoniel, Colombia's most wanted drug trafficker, made global headlines, Bogotá daily El Espectador writes about the significance of the news for a country that has battled narcotrafficking for decades.

👮 The arrest of the Colombian mobster Dairo Antonio Úsuga David, a.k.a. "Otoniel," is a victory for Colombian intelligence, law-and-order forces and the broader fight against crime. Details of the eight-year-long pursuit of the head of the Gulf Clan, of the tireless and meticulous work, testify to the capabilities that the police and army have managed to develop in the fight against the narco-trafficking that has long been a stain on Colombia.

🇨🇴🇲🇽 Otoniel is responsible for a criminal organization with more than 3,800 members and influence on 12 departments and 128 districts in Colombia (though data from the Bogotá-based Peace and Reconciliation Foundation counts 211 districts). The Gulf Clan sends half the drugs going out of Colombia, and is the main exporter to Mexico. Its ties to the Mexican cartel chief Joaquín "el Chapo" Guzmán are well-documented — and Otoniel had aspired to fill the power vacuum left by Guzmán's capture.

⚖️ Some have observed that the ensuing power vacuum will engender more violence, which is true. But we are, in any case, far from eliminating drug trafficking in Colombia or cutting its tentacles across public life. That shows the limitations of the hard-line response to drugs, when we have seen it is not enough. Still, it is essential in any fight against crime for the state to show its operational capabilities. The message is clear: not even drug overlords are above the law in Colombia.

➡️ Read more on Worldcrunch.com

📣 VERBATIM

"I love Mako. I would like to spend my one life with the person I love."

— Kei Komuro said during a news conference after his wedding with Japan's Princess Mako, the niece of the current emperor and the sister of the likely future sovereign. The princess lost her royal status as a result of her marriage with Komuro, a "commoner."

📸  PHOTO DU JOUR

An art installation "Greetings From Giza" by French artist and photographer JR faces the pyramids of Giza in Egypt, as part of the 2021 exhibition "'Forever Is Now," the first international art exhibition to take place there — Photo: Balkis Press/Abaca/ZUMA

✍️ Newsletter by Anne-Sophie Goninet, Jane Herbelin and Bertrand Hauger

Send all commoner and royal well wishes to Mako and Kei — and let us know what the news looks like from your corner of the world! info@worldcrunch.com

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