Aerolíneas Argentinas Hides behind Nationalist Folly
Over the last few months, Argentina has celebrated some of its most important national holidays: May Revolution (May 25), Flag Day (June 20), and Independence Day (July 9). These days of remembrance strengthen what many call the national identity.
Beyond these celebrations, which politicians have aptly hijacked in recent times, for some years now the Kirchner administration has been trying to give a new meaning to ideas like “sovereignty,” “what is ours,” and “homeland.”
This was precisely the government’s rhetoric some years ago when it nationalized the country’s iconic airline, Aerolíneas Argentinas, with a de-facto monopoly on domestic flights. To date, it has set quite a few records in operational failures, and not a single accomplishment in efficiency.
The firm’s spokesmen keep blaming the crisis on the prior private administration, while lauding the government takeover, but they never mention the airline’s huge net losses nor its questionable productivity.
Historically, the Argentinean government has funded infrastructure works and utilities firms regardless of costs, under the guise of “national integration.”
But I wonder, is this the way to achieve the purported goals?
If the airline’s ultimate objective is to connect different parts of the country at reasonable prices for Argentineans, keeping afloat an entire firm that has extremely expensive operational costs — and only generates losses — does not seem to be the most efficient policy.
British Airways has on average 142 employees per aircraft; Aerolíneas Argentinas keeps around 188 people on the payroll per airplane. A low-cost company such as the European RyanAir is even more efficient: it operates on less than a quarter of the budget of standard airlines, and employs only 32 staff per aircraft.
In light of these statistics, it is indisputable that a more appropriate policy would be to open up the domestic routes to competition and let any airline interested in, particularly low-cost firms.
The state could even subsidize low-traffic routes that are not profitable, but that it wishes to keep operational for strategic reasons, and pay low-cost firms to serve them. A little imagination would bring further efficiency gain, perhaps through the use of a varied fleet and smaller aircrafts.
This would allow routes the government wants to keep open to remain available, and competition would substantially reduce air fares. Without going too far afield, Panama authorized new airlines such as low-cost VivaColombia and saw rates fall by up to 75 percent.
It’s a simple equation. More competitors, among them the super-efficient low-cost airlines, push prices down. This benefits existing clients and encourages more Argentineans to travel by plane.
Since the return to state ownership, Aerolíneas Argentinas has tried by any means — formal and informal — to maintain control over local routes. Had its dispute with LAN over hangars at the Metropolitan Airport of Buenos Aires prospered, the Chilean company would have been unable to operate in the country at all.
If, on the other hand, the market were open for competition, not only would the overall quality of flights improve, but also their timing and safety, and many more people might opt for air transportation. This used to be beyond the reach of common Argentineans, compared with land transportation, which actually has a much higher rate of accidents.
At this point, one can hardly defend — even if the underlying goals are misguided — the inefficiency or the cost that taxpayers have to bear for a company that loses up to US$2 million a day. We could enjoy a thriving aviation market if only we were to allow competition and perhaps subsidize a few routes, with the presence of airlines whose core strategy is to minimize costs per flight.
More and more grandiose nationalist promises that lack substance will lead us nowhere. The government’s highly questionable public policies rather promote heated emotions that border on xenophobia.
We could also go one step further and dare to question that perhaps nations are not bound by their territories, which are ultimately historical accidents, but instead by a common culture and a sense of belonging among peoples.
Gonzalo Macera is an Argentinean economist, university professor, consultant, and businessman. He writes about economic and political issues for several outlets, and is a collaborator with Fundación Bases. Follow him @zalo_mac.