The big three U.S. airlines have poured capacity into short-haul leisure markets in Latin America. In the first half of 2024, the strategy has emerged as a weakness.
On the United earnings call on Wednesday, United Airlines Chief Commercial Officer Andrew Nocella said, “Weakness was felt in near Latin America markets.” At both United and Delta, revenue per available seat mile in Latin America declined between 12% and 13%, and yield declined between 10% and 12%.
In the current quarter, Delta’s Latin America unit revenue is expected to again show a double digit decline due to pressure in short haul markets, although both Delta and United executives said the longterm outlook is positive. Meanwhile American, with the biggest presence in the region, is expected to disclose the biggest impact from the market saturation when it reports earnings on Thursday.
Despite the warning signs, the rush to Latin American beach resorts continued in the past month, as the big three carriers all launched service to newly opened Tulum International Airport from hubs including Atlanta, Charlotte, Chicago, Dallas, Houston and Miami.
Tulum offers an alternative to Cancun, a highly developed resort with a sometimes crowded airport. “Historically people flew to Cancun and drove to Tulum,” said Frontier Airlines CEO Barry Biffle in an interview. “I don’t know if more people will go now, but a lot will go.” Frontier serves Cancun, but has not announced any plans to fly to Tulum.
The Tulum initiative comes has come as yields and fares to Cancun have fallen. Between January 2023 and January 24, the average fare fell about 11%, according to aviation analytics company Cirium. The average January one-way fare excluding taxes and fees was $201, fare, down from $226.
Statistics on Latin American growth, also compiled by Cirium for this story, show two additional trends. First, capacity increases in Caribbean resort destinations have been sizable. Secondly, Delta has led growth in both the Caribbean and South America. As Delta executives have said repeatedly, the carrier wants to eat away at American’s dominance in the region.
In Caribbean resort destinations, between the first quarter of 2023 and the first quarter of 2024, U.S. carriers boosted capacity by about 18% or a million seats, Cirium said.
Delta added 246,011 seats, growing by 32% in Caribbean resort destinations. American added 239,606 seats, a similar number of seats, but grew by a lower 13.5% off its larger base of nearly two million seats. United added 170,694 seats, growing by 31%. JetBlue added 159,371 seats, growing 11%, and Frontier added 100,220 seats, growing by 29%, Cirium said.
Looking at destinations in South America, Cirium said Delta boosted capacity by 32% or 70,975 seats. American added 55,284 seats, just 9% growth due to its already high presence in the region. United added 32,366 seats, for 14% growth.
Finally, looking at Cancun and Tulum, capacity to the two destinations grew about 20% between first quarter 2023 and first quarter 2024. All ten U.S. carriers flying to Cancun boosted capacity. In the first quarter, Cancun had about two million seats: Tulum, just getting started, had about 4,000.
In an April 11th report, Bank of American analyst Andrew Didora noted that in the big three carrier’s first quarter results, “The one negative is weakness on Latin America routes, which could limit AAL’s revenue growth vs DAL and UAL,” given American’s bigger presence in the region.
For American, Didora wrote that Latin America is “a headwind,” severe enough that “We see risk to EPS guide.” In fact, Didora cited multiple headwinds including “AAL’s schedules reflect the highest domestic capacity growth rate in 2Q24 at +7.5%; fewer premium seats across its fleet; a smaller transatlantic network; and outsized exposure to Latin America, especially in the short-haul market.”
