Avianca-Viva Merger: Failure to Approve Deal ‘Would Lead to Airfare Hikes’

Félix Antelo, CEO of the Viva airline group, tells Bloomberg Línea that the low-cost carrier faces the threat of being sidelined in the commercial aviation market, which would remove the option of cheaper airfares

Avianca and Viva
October 06, 2022 | 12:55 PM

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Bogotá — Since the announcement by airlines Avianca, Fast Colombia (Viva) and Viva Perú of their intention to merge, arguments against and in favor of the deal continue.

On the one hand, and as reported by Bloomberg Línea, nine airlines have already requested to be interested third parties in thd process; and on the other hand there have been calls for an investigation by the country’s industry and trade watchdog (Superintendencia de Industria y Comercio) and a class action suit filed in the administrative court of Cundinamarca, both of which argue that the deal has already taken place.

Against this backdrop, Bloomberg Línea interviewed Félix Antelo, CEO of Viva, who warned that “if this alliance is not approved, airfares would rise, because Viva would probably be a less relevant player in the future”.

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“The power of low cost and prices that this company offers would be diluted in the market and prices will go up; we have low prices because we have low costs, and if a relevant player like us, with 20% of the market, shrinks or disappears, low prices will disappear, and to recover or fill that gap would take years,” he said.

On the other hand, he added, “if this alliance is approved, Viva will continue to move forward, thriving and growing. That is the scenario”.

Félix Antelo, Viva's CEOdfd

Faced with the argument that the merger has already happened, when Avianca acquired 100% of the economic rights of Viva, a claim on which the class action in question is based, and which was filed by the former antitrust superintendent, Jorge Enrique Sanchez, Antelo said “the alliance has not taken place”.

“We are fierce competitors of Avianca commercially, as we are of the other six airlines that compete in the Colombian domestic market, and of the more than 20 airlines in the international market,” he said.

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He said that Viva continues to compete on a daily basis, and that this can be seen in how the airline’s growth strategy has been developing.

“We have had a commercial battle, mainly with Avianca and with many flights from Medellín. So there is not, in practice, and not even close, any kind of integration, nor are we working together, we do not even talk to anyone from Avianca. I want to be very clear on that,” he said.

“Imprecise terms such as ‘monopoly’, ‘dominant position’, have been used to confuse public opinion. There is no price-fixing, the customer is the one who chooses, it is not the airlines, this is governed by supply and demand. It is probably the most transparent and competitive market there is,” Antelo said.

When asked how the merger would work for consumers, and which he is confident will take place, justifying it as being the best solution for consumers, he said that what has been built over the last 10 years will be preserved and improved because there will be a much stronger financial muscle.

He highlighted the jobs the Viva brand generates, its value proposition and the low-cost model, as well as the possibility of resuming some of the routes that had to be cancelled, such as some of the routes to intermediate cities, as well as opening routes to new destinations.

He also said the two brands will be kept separate in the event of a merger, so that both Avianca and Viva will attack different market segments.

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“We are a reality, not a promise. What has Viva done in 10 years in Colombia and South America? We transported 40 million passengers, we flew at least one million people per year who were flying for the first time. We are the most punctual airline in Colombia, and we have been for the last four years. We have the second-most modern fleet in Latin America. Today we have 11 international routes, and we replicate the low-cost model beyond Colombia,” he said.

Viva’s precarious finances

Regarding the main argument put forward by Viva to carry out the merger, which is Viva’s delicate financial situation, since, during the Covid-19 crisis, the airline did not operate for six months, but without resorting to Chapter 11 insolvency protection or restructuring laws in Colombia, as was the case of its main competitors: Avianca, Easy Fly and Latam.

After that came the year 2021, which was positive for the company, because there was recovery and growth, Antelo said.

“We went from having a market share before the pandemic of 14%, to between 20% and 22% market share.”

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However, in 2022 everything changed.

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“We started with a very good January, but from February onwards the macroeconomic situation became complex: the jump in fuel prices, inflation shot up to double digits, and the Colombian peso’s exchange rate, in round numbers, devaluated 25%. This context is what puts pressure on the airline’s operations and cash flow,” Antelo said.

However, Antelo emphasizes that, “from April to now, since this transaction was announced, unlike other airlines, we do not have access to shareholder financing. We do not have access to capital injection until the civil aviation authority (Aerocivil) approves this alliance. When the approval is given, shareholders can enter with capital and can finance Viva’s cash needs; at this moment and while the alliance study process continues, we are self-financing. Hence the urgency of this operation”.