Interview: JetSmart CEO Estuardo Ortiz Speaks on the Low-Cost Carrier’s Expansion Plans in Colombia

The Colombian aviation market has faced major shakeups of late with the exit of two low-cost carriers, Viva Air and Ultra Air. While the drop in competition has been unwelcome news for domestic travelers who now must rely on the traditional airlines that have long dominated the market, regional low-cost Chilean airline JetSmart has been moving forward this year on its strategy to expand in Colombia.

Photo: Estuardo Ortiz, CEO of JetSmart (Credit: JetSmart)

With big-name partners in Indigo Partners and American Airlines, the carrier has big plans and hopes to begin offering a range of routes connecting Colombia to complement its initial flights between the Andean nation and Chile.

To learn more about the airline and its strategy to bring more connectivity to Colombia, Finance Colombia Executive Editor Loren Moss recently sat down to talk with JetSmart CEO Estuardo Ortiz.

Finance Colombia: First, I want to congratulate you on your Skytrax prize. Can you tell me about that recognition?

Estuardo Ortiz: Thank you. Recently, we were given the Skytrax World Airline Award 2023, which is a very well-known prize, for the Best Low-Cost Airline in South America for the second time. Also, we placed third in their ranking of all airlines in South America, which is even more relevant. Only Azul Brazilian and LATAM were ranked above JetSmart.

I’d like to highlight it because it has been recently said — and Colombia was not an exception — that the low-cost model lacks the required characteristics to offer good service. And since we are above many other airlines, which are legacy or full-service airlines, this shows you that the customer really understands the model. They like it and appreciate it.

According to Skytrax, we are the eighth Most Improved Airline in the world and the 17th in the global ranking of the World’s Best Low-Cost Airlines 2023.

We are proud of it, and we want to thank the customers, all the rockstars, and our collaborators at JetSmart. But mainly, in the case of Colombia, it is a clear statement — an irrefutable statement — that the JetSmart low-cost model in South America works.

We have already had 20 million passengers with a high level of satisfaction because of our valued service. In the end, it’s not only flying on a new A320, safe and reliable, on time with your luggage. It’s also flying in a friendly and warm cabin environment. You can buy the tickets online through your phone, like self-service. It’s simple but consistent. And when you link all that to low prices, it’s a strong formula that clearly shows our improvements this year but, mostly, that the JetSmart model in the region works.

“Colombia, for us, is undoubtedly one of the most important places, and we are preparing to operate domestically in 2024 and provide connectivity and better prices,” said Estuardo Ortiz, CEO of JetSmart. He added that, “I think our entrance this year will impact Colombia very positively in regards to tourism and competitive dynamics.”

Finance Colombia: That’s very important. I remember when, here in Latin America in general, flying was just something for rich people. When the low-cost model arrived in Colombia it became the competitor of not only legacy airlines but also buses. Many people who were never able to fly now have the opportunity to do it in Colombia — but also in Chile, which is a large country from north to south. It helped link families across long distances, not just businessmen or entrepreneurs.

Estuardo Ortiz: Definitely. It’s super important to understand that the ultra-low-cost model is designed to be low-cost without being cheap in terms of quality. In the end, it’s efficiency, technology, and investment of capital. For example, we are one of the airlines with the biggest number of young pilots. A young fleet is more reliable and, thus, means less cost.

Effectively, those who travel by bus can do it faster by plane. In Colombia, aviation is an essential transport service, the three mountain chains are there. In general, South America shares these characteristics, with Chile being an extensive country as well as Argentina. The distances are very long, and sometimes ground transportation isn’t very good.

Finance Colombia: How is the certification process in Colombia with the Ministry of Transport and other authorities? If I’m not wrong, you already received some approvals, correct?

Estuardo Ortiz: The process started last year in October when we provided the required documentation. In November, we had the audience. In February, we asked for permission for 27 routes. And in March, we started with the technical certification to receive the operating certificate, following the schedule we planned, the expectations, and the progress in the industry. There are five phases to the certification, and we have moved forward to continue supporting the same goal of operating domestic routes in Colombia by the end of this year.

“We placed third in their ranking of all airlines in South America … In the case of Colombia, it is a clear statement — an irrefutable statement — that the JetSmart low-cost model in South America works.”

– Estuardo Ortiz, CEO of JetSmart

Finance Colombia: In March, fares here in Colombia skyrocketed. Before, low-cost airlines were proud of offering cheaper tickets and also pushing other local or legacy competitors’ fares down. With the void left by Viva Air and Ultra — and I don’t know if the legacies are taking advantage of it — but prices went so high. For example, San Andrés, which is an island that counts on tourism, was hit by a recession and now prices are so high that they are noticing empty hotels and restaurants and complaining about it. When JetSmart gets into the domestic market, will it push legacies’ prices down again?

Estuardo Ortiz: I think you make an excellent point. It’s something I’ve been talking about for several months, and it has to do with free trade and access to the Colombian market, not only through a certification process but also for the access to slots at Bogotá’s El Dorado Airport.

There has undoubtedly been a capacity reduction — a reset in the market — thanks to the exit of those two operators. The ones that remain in the market are growing, and I think for us — and for the Colombian traveler — it’s important to have operating space for the 2023-2024 fleet because, as you stated, that is what allows more competition in the market.

We are in an aviation market that works on a supply/demand basis. That’s the truth. There are other factors, too — such as fuel price and VAT tax that we can talk about — but, mainly, it’s supply and demand.

So we expect our entrance to the market to bring more profit, opportunities, routes, and employment. That very same competition will start moderating the prices until we reach a reasonable point of connectivity. I think our entrance this year will impact Colombia very positively in regards to tourism and competitive dynamics.

Finance Colombia: Talking about the two low-cost airlines here in Colombia, Viva failed because of external factors. There is so much gossiping and theories about it. Ultra failed probably because of internal factors or operations. What about JetSmart? I know you have big allies, such as Indigo Partners and American Airlines, but what resources and strategies does JetSmart have so as not to go through the same evils as these market pioneers in Colombia, the low-cost airlines that disappeared?

Estuardo Ortiz: Firstly, I think we must put into perspective that the aviation industry has been hit since the beginning of the pandemic until today. There has been an unprecedented and continuous crisis. It’s been more than two years since that date, and we’ve been through travel restrictions in all the regions. Then, last year, with the crisis of the war in Ukraine, fuel prices went up, as well as interest rates, and inflation and currency devaluation were also affected.

It’s been an unprecedented period for the global industry. There has never been such a thing like this. In the region, we’ve seen a big drop in the number of airlines. Also, the most-established and traditional airlines had to secure themselves against bankruptcy. So, we have to put the whole situation into context, besides focusing on two particular low-cost airlines. The industry is still on its way to recovery. Even though, in Colombia, this effect has been very noticeable, in general, aviation is still re-emerging in many senses.

For us at JetSmart, it’s become an opportunity. There are new places for us. We have an ambitious fleet scheme with 125 signed airplanes, and we are receiving more. We also have two important shareholders in the company. Indigo Partners, as you mentioned, is the most successful aviation shareholder in the world, with many successful airlines in the US and European stock markets. A well-proven business. The other shareholder is American Airlines, which is the biggest airline in the world. So we do have an operational, commercial plan that is financially achievable.

READ MORE: Viva Air – The Chronicle of a Death Foretold

Along with the previously mentioned, there is no way this model can’t work. How wouldn’t it if we offer flying in a new plane for half the price? What is important to keep in mind is that we are in a volatile region that suffers many changes and we must be prepared and have a long-term plan so as to keep up. We are confident to take this opportunity. We are adding connectivity to the country.

Finance Colombia: The relationship with American Airlines is very interesting. Firstly, it’s not so common for a low-cost carrier to be allied with a legacy. How is it going to work? For example, with legacy airline travelers that have everything included, how can you translate that into low-cost fares? And vice-versa. If I buy a JetSmart ticket and fly with American Airlines, can I fly in business class? How does it work?

Also, what does connectivity mean in these terms? For example, American Airlines already flies in Colombia and other South American destinations. In the future, with JetSmart, would I be able to fly from Medellín to Miami or from Bogotá to Orlando? What is your strategy in that regard?

Estuardo Ortiz: Traffic from North America to South America is still hugely important. Today, we see that United Airlines is a shareholder and investor in Avianca, for example — as is Delta in LATAM. That’s why we believed having American Airlines as a shareholder was a strategic step, and I think we are looking to complement and provide customers with more options.

Effectively, as we continue implementing, a traveler will be able to fly from every city where JetSmart is available — in Chile, Argentina, Perú, and, in the future, Colombia — and connect it to American Airlines’ global network in the US or anywhere else within American’s global network. I think it will bring another option for the South American and Colombian market that isn’t available at the moment.

“The demand is returning, and in 2023 and 2024 we’ll see an international and South American traffic recovery,” said Ortiz. “We want to participate in that recovery process.”

Regarding your question about customer’s experience, it’s a pretty good question! But I think we must be aware of the changes in the South American region. Most of the current operators in South American flights operate in narrow bodies, A320 or Boeing 737, and they all have a single class. There is no business class anymore.

So, if you are asking how will the connectivity happen? Well, an important competitor in Colombia recently removed business class. Another important operator that has been in the region for many years hasn’t even offered it for a long time.

In the end, there isn’t as much difference as we thought there was 10 years ago. In our particular case, with American, we developed technology — which took us almost one year — that allows us to use an ancillary revenues platform of additional services that JetSmart already has so as to provide them to the customer.

We recently started commercializing the codeshare agreement in four Chilean cities on June 1, where if a traveler is, for example, flying in business class and wants to fly in first class and carry a suitcase, we are already selling those services. So, in the ticket, those services will be included.

Finance Colombia: Today, in Colombia, because of the political uncertainty, the peso is slowly recovering its value, but interest rates have been going up. I don’t know how that affects the financing of the planes, but we are also potentially talking about an economic slowdown. What are your growth and economic prognosis, specifically looking at headwinds and tailwinds?

Estuardo Ortiz: Well, it’s an excellent question. Our objectives as an industry are strong. We are bound to global macroeconomic variables and, as you mentioned, the fuel price. Even though it’s true that the price isn’t as high as last year, it’s still high. But around this date last year, it reached the highest point in history. It’s still a crucial element that hasn’t gone down. Some countries, such as Colombia, among others, apply fuel taxes.

So, there are many key elements, such as interest rates and inflation, that continue to present challenges globally. We see the rates going up in England. It’s a worrying topic in many countries. Thus, it affects the financing of the airplanes directly and it has put a lot of pressure on the industry. It’s real. In the case of Colombia, there is also the VAT tax added to the tickets. We must accept the industry is still economically under pressure.

Secondly, the South American region is going through a post-pandemic shock. Many countries are suffering from a volatile economy. Some are going through important political changes this year.

“The ultra-low-cost model is designed to be low-cost without being cheap in terms of quality. In the end, it’s efficiency, technology, and investment of capital.”

– Estuardo Ortiz, CEO of JetSmart

For JetSmart, we think this demand, undoubtedly, brings back traveling by plane, which is very important in a post-pandemic context — not only for leisure but also for visiting friends and family. Even in business sectors, we don’t focus so much on corporate issues, but the domestic market is very good in terms of the entrepreneur and business people.

The international market is the one still recovering in South America. It’s still only 70% of pre-pandemic levels because of the previously mentioned fuel prices. But the demand is returning, and in 2023 and 2024 we’ll see an international and South American traffic recovery. We want to participate in that recovery process.

Another key factor is that there are fewer competitors. The region has changed. The other day I was doing math and, after the pandemic, there are 11 fewer airlines in South America. Some of the ones that exited may have been smaller airlines, but that’s still a big number. In Argentina we were seven — now we are three. Same with Peru.

That’s something to consider when you have to plan, and JetSmart is the biggest growing airline in South America. In the second quarter of 2023, we grew 71% regarding passengers compared to the second quarter of 2022.

I believe that in between the crisis there are still opportunities. We normally take advantage of these opportunities. Colombia, for us, is undoubtedly one of the most important places, and we are preparing to operate domestically in 2024 and provide connectivity and better prices.

This interview has been edited for length and clarity.