The airline sector in Latin America and the Caribbean has great growth potential until 2040, with annual growth estimates of 3.7%, in line with global growth and above projections for North America, of 2.8% in the same period. But it will need to overcome regulatory, taxation and infrastructure obstacles to reach this goal.
The estimates were presented this Saturday by Peter Cerdá, regional vice-president for the Americas of the International Air Transport Association (IATA), during the entity’s annual assembly being held in Rio de Janeiro.
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When listing the sector’s challenges, the association’s executive highlighted the issue of the tax burden on airlines, which reaches 29% in Latin American and Caribbean countries, equivalent to US$44 more dollars on each ticket. This is well above the pressure from taxes and fees in North America (15%) and the 25% recorded in Europe, where income standards are higher.
VAT no Brazil
Specifically in Brazil, Cerdá warned about the impact of the Value Added Tax (VAT), created by the tax reform and which will unify taxes such as PIS, Cofins, ICMS and ISS. In IATA’s accounts, the expected VAT rate will reduce demand for tickets by 30%, by making domestic and international fares more expensive.
The estimate is that the average domestic fare will rise from US$130 to US$160 with the new VAT rate, while the average international fare would rise from the current US$740 to US$930.
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“We need to find solutions. With the current VAT proposal it will be impossible to maintain sustainable growth in the short term. No more new taxes”, said the executive, who spoke about meetings between the association and companies with the government presenting results obtained by other countries in the region by adopting a different strategy, of opening up space for some exemptions or bringing lower tariffs, as in Barbados and Guyana.
Paraguay also recently abandoned an extra US$15 fare, making the demand for tickets more accessible to a larger portion of the population.
He recalled that Brazil broke the record of 100 million tickets sold last year and that now there is a forecast that the number will fall to 90 million annually. “The industry works to reduce the cost of the ticket, but the additional costs make it inaccessible,” he commented.
The case of Brazil, however, is far from being the only one. In Argentina, where Javier Milei’s government is consistently praised for opening up the economy, the region has the most expensive air fares. And, even after promises to consult the industry before readjusting rates, Argentine regulatory bodies authorized two adjustments totaling 18%.
The various cases cited by the IATA executive were used to illustrate the situation of how importance needs to be given to interconnectivity in the region, which will help to further popularize air transport. There is research that shows a predilection for bus transportation, on trips that last 6 to 18 hours and that could be done by plane in 2 or 3 hours. The price of tickets, inflated by additional costs, is the explanation, according to the IATA executive.
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The journalist traveled at the invitation of IATA.
