Viva Air: the reasons that led the airline to the crisis – Sectors – Economy

Viva Air can’t take it anymore. The low-cost airline’s financial situation is so critical that it immediately suspended operations last night.

(You can also read: Latam, Avianca and Satena offer flights to Viva Air passengers)

Despite the fact that he asked Civil Aeronautics 7 months ago to allow him to be part of a group of stronger airlines due to his financial situation, the process has not yet been completed.

But how did it get to this point?

The pandemic was a hard blow not only for Viva but for the entire sector as the borders were closed and people stopped traveling. However, the worst was what came after the skyrocketing of fuel prices and the sharp devaluation of the dollar.

This situation affected the balances of Viva and other airlines. Félix Antelo, who until a few days ago was the executive president of the airline, told in an interview with EL TIEMPO that they were experiencing the most challenging context of the airline.

With the highest fuel in local currency in history, inflation in double digits and the dollar on the rise, Viva Air and Avianca decided to join forces and filed before the Civil Aeronautics (Aerocivil) in the middle of last year the request for approval of their integration.

Avianca’s parent company could provide financial support, as well as consolidate political and control rights, to invest in it and solve the difficult situation it is going through.

However, the entity unexpectedly completed the transaction in November, which resulted in the loss of two aircraft from the Viva Air fleet and, in mid-January 2023, the Civil Aeronautics annulled the entire process because, according to the entity’s own admission, fail to follow proper procedures when evaluating transactions.

Increases in fuel and dollar

The company’s financial situation is very delicate, mainly because the macroeconomic variables for aviation, throughout 2022 and 2023, have played against it, especially because the price of fuel almost doubled to $3.50 in 2022.

On the other hand, there is the problem with the price of the dollar. “We have had a 25 percent devaluation, and in the case of Viva, 75 percent of what we sell is in Colombian pesos and practically 70 percent of the costs are in dollars. There is a very complex currency mismatch, with a very large devaluation,” Antelo recounted a few weeks ago.

Finally, there is the issue of inflation, since prices have not stopped rising in the country.

(Do not stop reading: Viva Air says that senior government officials knew about the suspension of operations).

suspension of activities

All this situation led the low-cost airline to announce the immediate suspension of its operations.

Through a statement, the airline said that the announcement was due to the financial and operational infeasibility, as a result of the lack of timely definition by the Civil Aeronautics, compared to the alliance between Viva and Avianca, as the only possibility to continue flying and fulfill their commitments as airlines.

“Viva did not take this drastic step as a strategy to put pressure on the government, it was taken because, as we have warned stakeholders for months, our reality is that we are in a financial crisis“, sentence.

In addition to this, the airline assured that senior officials of the National Government knew this decision first hand, not only in pleas made by Viva in the days and hours before it was taken, but also in multiple communications for months in which it had been said the seriousness and imminence of this decision.

(It may interest you: Did you have a Viva Air ticket? So you can reschedule your flight with another airline).

“Despite the efforts made to speak with the director of Civil Aeronautics, Sergio París, he never answered the multiple SOS calls. Even Castlesouth, holder of Viva’s political rights, made similar communications in recent weeks to different officials of the National Government (including Aerocivil) to indicate that, “without an urgent decision from the authority, Viva had hours to live,” said the company.

Dominant position?

The company said at all times that the only way out to “save Viva from imminent bankruptcy” was its business integration with Avianca. However, the process dragged on.

In November of last year, Avianca said that with this integration it does not have a dominant position in the Colombian market; However, if it were to integrate with Viva, it would be willing to make several offers or alternatives to Aerocivil so that this situation can be reduced and thus have the guarantee to carry out the operation.

One of them could be, for example, giving up operating any of the three routes in which they would have 100 percent participation after the integration with Viva: Bogotá-Riohacha, Medellín-Riohacha and Bogotá-Santa Marta.

Currently, Avianca has a 36.6 percent share in the Colombian market, while Viva has 20.4 percent. In an eventual integration, these airlines would come to control 57 percent.

more offers

In recent weeks, both the Chilean low-cost airline JetSmart and Latam have made offers for the purchase of Viva Air.

“We believe that a transaction between JetSmart and Viva Air will allow the ultra-low cost model to be maintained in Colombia and that will allow us to continue offering more routes at lower prices.“, said Estuardo Ortíz, CEO of JetSmart, about the proposal to buy Viva.

JetSmart operates in Colombia from the airports of Bogotá, Cali and Medellín, with flights to Santiago, the Chilean capital.

The company said that this alliance is sought because “the airlines do not have common routes in Colombia and both operate new fleets of Airbus A320neo.”

days after Latam Airlines Colombia it also expressed its interest in starting negotiations to acquire Viva Air Colombia.

“The Colombian subsidiary of the LATAM group is prepared and has the capacity to strengthen its operations in the country. In this way, an eventual purchase of Viva Air Colombia becomes a growth opportunity, offering Colombian consumers the best value offer in the local market in terms of service, and the country new alternatives to strengthen its connectivity and development. of tourism,” he said in a statement.

When was Viva Air born?

The low-cost airline was founded in 2009 under the name of fast colombia and began operations in 2012. Its operations center was located at the José María Córdova de Rionegro International Airport, which served Medellín.

The company was started as the result of a Stanford University graduate project and its founders were William Shaw, Fred Jacobsen, Gabriel Migowski and Juan Emilio Posada; however, years later it was sold.

Indeed, Shaw is the current CEO of another low-cost airline, Ultra Air. In an interview with EL TIEMPO, he said that he is “very sad” about what the airline is going through at the moment, but if the integration with Avianca occurs, he considers it important to be careful with the monopoly of the airport infrastructure, specifically, with the slots (arrival and departure times) of the El Dorado airport, the counters and access to certain vital spaces for the operation of an airline, in order not to affect the operation or expansion of other companies such as Ultra Air.

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Noelia Ciguenza Riano
ECONOMY