Insights 26 April 2019 By: Howard Blankenship

A revolutionary opportunity: AFPs driving growth for Latin American airlines

There is no simple way to sum up the Latin American airline market. It’s one of the fastest-growing regions in the world – projected to serve more than 693 million passengers and contribute $353 billion of GDP by 2037. Yet airlines operating in the region earn the second-lowest per-passenger net profit, behind only Africa. Latin America has its share of dominant legacy carriers – Aerolineas Argentinas, Avianca – but in many individual markets, LCCs are flourishing. The region also has one of the largest unbanked populations in the world, although nearly 40% of Latin Americans now book their travel on mobile devices.

If there is a theme that unites the Latin American airline environment, it’s opportunity. Take Colombia, the region’s third largest aviation market behind Brazil and Mexico. Annual domestic airline passenger traffic increased more than 100% between 2009 and last year, from 12 million to 27 million passengers, and total passengers including international exceeded 41 million. This traffic is supported by steady GDP growth in the 2-5% range, as well as a stable operating environment relative to its turbulent neighbor Venezuela.

Though Avianca is still the major domestic airline in Colombia carrying nearly 58% of domestic passenger traffic annually, there are a handful of low cost carriers in the country gaining both domestic share and exploring new ways to increase revenue and attract new customers.

Viva Las AFPs!

The most well-established of these LCCs, Viva Air, recently partnered with us to become the first airline in Latin America to offer Apple Pay and Google Pay to its customers. The decision to support these two global mobile wallets – in addition to MasterPass and Visa Checkout, which we are also helping deploy along with Viva Air’s current payment provider, Ingenico illustrates the potential of mobile payments and alternative forms of payment (AFPs) in general.

Viva Air and other innovative airlines in the region are making a bet on AFPs – and we think it’s a good one. In fact, my colleague James Schildknecht described in a recent Aircraft Interiors article that mobile booking and seamless payments are “table stakes” for airlines to grow ancillary revenues and improve margins. Over the last three years, more than 85 million new smartphones have been put in use in Latin America, and smartphone adoption rate is projected to exceed 71% by 2020, ahead of the global average of 66%. Global AFPs such as PayPal, Apple Pay, Google Pay, Alipay and WeChatPay, may not yet be available in every South and Central American country, but they are proliferating. The popularity of digital and mobile payments is growing hand in hand with how familiar Latin American travelers are becoming with their mobile devices.

Creating Seamless Paths to Purchase and Payment

Increasingly, travelers in the region are progressing from search to purchase entirely on digital channels and their mobile device. For these users, any interruptions or difficulty during the booking process – including lack of support for preferred payment options – can result in abandoned carts, transaction drop-outs, and loss of revenue to the airline. That is why it’s so important for Latin American airlines to be proactive in offering the payment methods their passengers expect, like Viva Air is doing with their AFP initiative.

To seize the opportunity that the Latin America presents, more airlines must adopt similar payment and ancillary revenue strategies. They should focus on their omnichannel customer experience and alternative forms of payment, not just the hyper-regional payment methods that are unique to their domestic markets, but also the global mobile wallets that their future customers will prefer. They need booking processes that create seamless paths to purchase and include relevant ancillary offerings that can boost revenue. And they need strong technology partners to help them achieve these capabilities quickly and cost-effectively.

If you’re an airline or travel merchant operating in Latin America, or if you’re just curious about the opportunities in the region, we encourage you to download our recent report, Outlook 2019: Digital Commerce and Payment Trends in the Dynamic Latin American and Caribbean Travel Sectors. To find out more about how we helped Viva Air become the first airline in Latin America to offer Apple Pay and Google Pay, or to learn how we can help your business, contact one of our experts.