Economy

How Latin America's Largest Airline Group Floats Above The Industry Crisis

Flying high
Flying high
Carlos Tromben

SANTIAGO - On January 16th a Boeing 787 Dreamliner from All Nippon Airlines (ANA) was forced to perform an emergency landing in a regional airport after smoke was detected in the electric compartment. This was the fourth incident in less than a month for one of the world's most state-of-the-art aircrafts.

Dreamliner had represented a big bet for US-based Boeing. It would reduce fuel use and included new flying and cabin pressurization systems, as well as lighter components made of carbon fiber.

Following the ANA Dreamliner emergency landing incident, the US Federal Aviation Administration (FAA) decided to ground and suspend all flights for the 787 fleet. The decision was a shock to all companies, including those in Latin America.

For Chile's LAN airline, it had been the company's CEO Enrique Cueto who had proudly announced the debut of the 787 in Latin American skies. “Thanks to the state-of-the-art technology and visionary elements, we can now cover larger distances in a more efficient and environmentally conscious aircraft,” he'd declared.

Experts explain that the problems with the 787 are a sign of our times. Following the Boeing–McDonnell-Douglas fusion, the in-house engineering and financial mentality of Boeing eventually gave way to the McDonnell-Douglas approach. The result is a very complex organization with an unprecedented level of outsourcing, with more than 50 different providers of engineering and design.

These are hard times for an industry that is going through its second structural crisis since the Sep. 11, 2001 attacks, after which 11 companies went bankrupt. Since the global financial crisis in 2008, the number of failed airlines now totals 40, three of which are Latin American. (Boeing said on Friday that the 787 would be back in the air within weeks, though some remain skeptical.)

We still wonder who will be the winners and losers in the next few years, considering two, apparently contradictory, elements that mark the current phase: the need to control costs, especially fuel costs, and the ambition to take full advantage of the accelerated growth of an expanding aviation market.

The trends are particularly pointed in Latin America. According to IATA (International Air Transport Association), the Latin American aviation industry expanded by more than 30% between 2008 and 2012. Measured in RPK (revenue by passenger/kilometers), Latin America is the second region with the most growth at a global scale, after the Middle East. At the same time oil prices have shot up more than $10 per barrel.

Spanish and Brazilian woes

A report by the European Commission shows that the cost volatily of fuel has pushed airlines to adopt two important short term strategies: increasing revenue by applying surcharges for fuel to the passengers; and isolating volatility with financial hedges. Energy efficiency, meanwhile, is seen as a more long-term objective.

Within this context, which favors larger carriers, no one is better prepared to take advantage of the situation than Latam, the multi-Latin holding that groups Chilean LAN, and Brazilian TAM. Latam is the region's largest airline company, with 46% of the air transport capacity between Latin American countries. Latam also owns a fleet with an average age of less than seven years, which lowers overall fuel consumption.

Another of Latam's strategic advantages is having local airlines that participate in the cabotage market, whereby they fly domestic routes in other countries. “This way their priority is transporting passengers who fly internationally from non capital cities," says Guillermo Correa, from the travel agency Travel Security. “Latam has been very successful in segmenting their clientele, in a way where each one pays according to their capacity, allowing more people to have access to more economical rates, which become viable since other people pay more.”

Nevertheless, this Chilean-Brazilian company must still determine if it should take the routes that smaller airlines have stopped taking, such as Uruguayan Pluna. For José Manuel Rebolledo, Aergo Capital’s vice-president for South America: “before anything, they should rationalize their current routes together with Europe and Asia, to then be able to get the most out of all the destinations.”

As Latam seeks to synergies to consolidate itself as one of the most profitable airlines in the world, others struggle just to stay afloat. Two obvious examples are Spain's Iberia and Brazil's Gol.

During the first nine months of last year, Gol lost nearly $500 million, reduced staffing by 2000 posts, including pilots and ground personnel, reducing flight frequency from 1100 to 900 daily flights and closed Webjet, a low-cost airline acquired only a year ago.

Merged with British Airways in 2011 in the holding IAG, Iberia faces tough financial and labor problems. Today it is “fighting to survive,” as top Iberia officials have said. When IAG fired 537 pilots, 932 on-board personnel and 3,031 ground personnel, a wave of accusations and complaints hit the holding. Iberia has been bleeding around 1.7 million euros a day.

Jorge Carrillo, who heads the airline sector of the workers commission union (CC.OO), blames the decisions taken by Iberia’s president Antonio Vázquez (also president of IAG) and chief executive Rafael Sánchez-Lozano. “They both abstained from renewing the fleet, which would have saved the company more than 100 million euros in fuel per year." Carillo says. "This could have brought 40% less in losses in just the last nine months."

Ximena Bravo, Hebe Schmidt, Graziele Dal-Bó, Susan Abad and Loreto Urbina contributed to this report.

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Geopolitics

How Thailand's Lèse-Majesté Law Is Used To Stifle All Protest

Once meant to protect the royal family, the century-old law has become a tool for the military-led government in Bangkok to stamp out all dissent. A new report outlines the abuses.

Pro-Democracy protest at The Criminal Court in Bangkok, Thailand

"We need to reform the institution of the monarchy in Thailand. It is the root of the problem." Those words, from Thai student activist Juthatip Sirikan, are a clear expression of the growing youth-led movement that is challenging the legitimacy of the government and demanding deep political changes in the Southeast Asian nation. Yet those very same words could also send Sirikan to jail.

Thailand's Criminal Code 'Lèse-Majesté' Article 112 imposes jail terms for defaming, insulting, or threatening the monarchy, with sentences of three to 15 years. This law has been present in Thai politics since 1908, though applied sparingly, only when direct verbal or written attacks against members of the royal family.


But after the May 2014 military coup d'état, Thailand experienced the first wave of lèse-majesté arrests, prosecutions, and detentions of at least 127 individuals arrested in a much wider interpretation of the law.

The recent report 'Second Wave: The Return of Lèse-Majesté in Thailand', documents how the Thai government has "used and abused Article 112 of the Criminal Code to target pro-democracy activists and protesters in relation to their online political expression and participation in peaceful pro-democracy demonstrations."

Criticism of any 'royal project'

The investigation shows 124 individuals, including at least eight minors, have been charged with lèse-majesté between November 2020 and August 2021. Nineteen of them served jail time. The new wave of charges is cited as a response to the rising pro-democracy protests across Thailand over the past year.

Juthatip Sirikan explains that the law is now being applied in such a broad way that people are not allowed to question government budgets and expenditure if they have any relationship with the royal family, which stifles criticism of the most basic government decision-making since there are an estimated 5,000 ongoing "royal" projects. "Article 112 of lèse-majesté could be the key (factor) in Thailand's political problems" the young activist argues.

In 2020 the Move Forward opposition party questioned royal spending paid by government departments, including nearly 3 billion baht (89,874,174 USD) from the Defense Ministry and Thai police for royal security, and 7 billion baht budgeted for royal development projects, as well as 38 planes and helicopters for the monarchy. Previously, on June 16, 2018, it was revealed that Thailand's Crown Property Bureau transferred its entire portfolio to the new King Maha Vajiralongkorn.

photo of graffiti of 112 crossed out on sidewalk

Protestors In Bangkok Call For Political Prisoner Release

Peerapon Boonyakiat/SOPA Images via ZUMA Wire

Freedom of speech at stake

"Article 112 shuts down all freedom of speech in this country", says Sirikan. "Even the political parties fear to touch the subject, so it blocks most things. This country cannot move anywhere if we still have this law."

The student activist herself was charged with lèse-majesté in September 2020, after simply citing a list of public documents that refer to royal family expenditure. Sirikan comes from a family that has faced the consequences of decades of political repression. Her grandfather, Tiang Sirikhan was a journalist and politician who openly protested against Thailand's involvement in World War II. He was accused of being a Communist and abducted in 1952. According to Sirikhan's family, he was killed by the state.

The new report was conducted by The International Federation for Human Rights (FIDH), Thai Lawyer for Human Rights (TLHR), and Internet Law Reform Dialogue (iLaw). It accuses Thai authorities of an increasingly broad interpretation of Article 112, to the point of "absurdity," including charges against people for criticizing the government's COVID-19 vaccine management, wearing crop tops, insulting the previous monarch, or quoting a United Nations statement about Article 112.

Activist in front of democracy monument in Thailand.

Shift to social media

While in the past the Article was only used against people who spoke about the royals, it's now being used as an alibi for more general political repression — which has also spurred more open campaigning to abolish it. Sirikan recounts recent cases of police charging people for spreading paint near the picture of the king during a protest, or even just for having a picture of the king as phone wallpaper.

The more than a century-old law is now largely playing out online, where much of today's protest takes place in Thailand. Sirikan says people are willing to go further on social media to expose information such as how the king intervenes in politics and the monarchy's accumulation of wealth, information the mainstream media rarely reports on them.

Not surprisingly, however, social media is heavily monitored and the military is involved in Intelligence operations and cyber attacks against human rights defenders and critics of any kind. In October 2020, Twitter took down 926 accounts, linked to the army and the government, which promoted themselves and attacked political opposition, and this June, Google removed two Maps with pictures, names, and addresses, of more than 400 people who were accused of insulting the Thai monarchy. "They are trying to control the internet as well," Sirikan says. "They are trying to censor every content that they find a threat".

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