A few weeks ago we read news that mentioned that LATAM Peru would reduce its rates by approximately 50%. According to the report [1] , this would be done so that more Peruvians could have access to this means of transport because it is a fast and safe way.
A few days later new news came car owner database out, mentioning that this decision was a consequence of a latent threat of the arrival in our country of foreign "low cost" airlines such as Germanwings, American Eagle and that national airlines such as FlexAir, Lima Airlines, among others would develop [2] , something that has not yet happened.
Every so often this type of information appears, and the question always arises: Can Peru have a “low-cost” airline? There are many factors that could indicate that it can, but it is important to be clear about what a type of business like this entails and whether market conditions allow it.
To do this, it is important to keep in mind the four main characteristics that, in my opinion, a “low-cost” airline has:
Very low prices.
It carries out its operations in alternate airports in remote areas.
Only hand luggage of a maximum weight of 10 kilograms is allowed.
Any additional services – food, drinks, etc. – are billed as additional.
Following these parameters, the company's generic Porter strategy is Cost Leadership, where through the savings it generates in its processes, it allows it to offer customers very low rates compared to the market average. This in turn has an impact on the quality of the service provided and that is why when you board one of these aircrafts there is usually no screen at the airport, they do not offer you food or drinks and the seats are only protected by simple upholstery.
If we compare this with the service provided by airlines flying in our country, it is very different, since as Peruvians we are used to good service (always being given a snack, being able to read a magazine and rest in comfortable seats while the short trip lasts). Taking as an example the slogan of the old LATAM brand, “LAN, the charm of flying”; we can clearly understand that its value proposition is service, and this is very different from what a “low cost” airline seeks to provide.
In addition, having only one airport in Lima for our boarding and disembarking does not allow for competitiveness among air operators. The nearest airport is Pisco, but for any passenger, getting from that city to their final destination is absurd, due to the land transportation costs that would be involved.
In short, in my opinion, it is unlikely that Peru will receive a “low cost” airline because it has many operating costs that would not allow it to follow the Cost Leadership strategy. But what can happen is that several existing airlines can change their policies in order to become one of them. This can be done by reducing the baggage allowance, on-board service, and reducing spaces between seats.
A few days ago, LATAM Peru announced that starting August 29 [3] only one piece weighing a maximum of 23 kilos will be allowed for domestic flights, when previously up to two pieces that together reach 23 kilos were allowed. This, together with the reduction of almost 50% in their prices, could be the path to a change of strategy or they could just be seeking to “democratize” the market as they point out.
