Avianca (NYSE: AVH, BVC: PFAVH) has announced that it is changing out the seats in its Airbus A320 fleet with cheaper, thinner versions that will allow the airline to squeeze 24 more passengers on a flight, even though its passenger traffic is down almost 10% and on-time performance is stuck under 80%. According to Avianca’s Q4 financial summary, the company went from $19.3 million in net income during Q4 2018 to a whopping loss of $377.9 million in Q4 2019.
Under new management and with a new board, the airline is making some puzzling moves. Even though load factor (Q4 2018 vs Q4 2019) has dropped from 81.7% to 80.1%, meaning the planes are emptier, and passenger traffic has fallen from 7.95 million during the quarter to 7.4 million, with emptier planes and fewer passengers, the airline has decided to do away with one of its main differentiators in economy class: comfortable seats with entertainment screens, charging ports, and industry leading legroom. Finance Colombia has reached out to Avianca for help in understanding the reasoning behind this move but Avianca generally ignores Finance Colombia media inquiries.
As Avianca’s debt goes up, its passenger numbers are plunging.
Relying on reports from Valora Analitik and Reportur, the airline will install new thinner seats in its economy section in the 2nd quarter of this year. If no changes are made to business class, to fit 24 more seats in per plane, Avianca’s economy class would be significantly more dense than true low cost carrier Viva Air, which has 181 seats in its Airbus A320 aircraft and no first or business class. Though Avianca has historically been in a different market segment, the new CEO Anko Van Der Werff appears intent on remaking the airline’s commercial offer to mirror low cost carriers. The airline cut benefits for Lifemiles loyalty program members, introduced a fare segment that seems to mimic the low-cost carrier model, and now is changing out its deluxe seats for basic models, removing leg space for passengers. The airline still has a sub 80% on time performance rate. More seats won’t fix this, especially when there are less passengers flying on its existing planes.
Van Der Werff, who told Colombian weekly Semana that “Avianca needed some northern European cold heads” (as if Colombians or Latinos were genetically incapable of running an airline) reportedly made the laughable claim that Avianca is one of the “11 best Airlines in the world” per the discredited APEX ratings, which according to Travel Codex, excludes any customers who are dissatisfied with the carrier and switch to another, or any passengers on a delayed flight! To be fair, APEX CEO Dr. Joe Leader says APEX can be trusted because he is “a PhD and analytical purist.”
— Dr. Joe Leader (@joepleader) September 14, 2019:
Avianca may already be losing its traditional market of business and luxury travelers. As this article was being written, a photo was circulated of veteran US actor Michael Douglas, who apparently of his own accord, chose to forego business class offerings of Avianca or LATAM and flew Viva Air this morning from Medellín to Cali, Colombia.
It is certain that Avianca is saddled with crippling debt, and the new CEO and board, along with patrons United Airlines & Kingsland Holdings appear to be addressing that. However, every operational move that Avianca seems to be making points toward a lack of confidence in a place for a full-service, high touch airline in Colombia. LATAM, with its new Delta Airlines alliance will certainly take up some of that slack, and COPA on international routes.
True Low Cost Carrier Viva Air just announced a new international Cartagena Miami route. If Avianca’s strategy is to take on budget carriers like Viva Air and Spirit, it is probably doomed. That would be akin to Macy’s trying to take on Walmart in the US, or Vélez trying to make itself into Totto in Colombia. Companies fail when they try to be “all things to everyone.” Instead of fixing its operational problems, by going “downmarket” Avianca is abandoning any reason travelers have to prefer them, and with tons of debt and an increasingly muddled brand, it will almost certainly lose if it attempts to go head to head with operationally efficient, well financed low cost carriers who would only need to further reduce fares and wait until the airline collapses under its debt.