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Monday, May 19, 2008

SkyWest Int’l Plans Focuses on Latin America

St. George, UT – At a time when regional growth in the U.S. is expected to be minimal compared to the robust growth since 9/11, SkyWest is focusing more on Latin America than Europe where it is working on a relationship with an unnamed partner whose plans have been stalled because of the run up in fuel prices.
The European market, said CEO Jerry Atkin, is a mature market. However, both he and Republic Holdings CEO Bryan Bedford have noted the number of proposed carriers who want to tap their expertise in creating successful airline models. For its part, Republic, however, has its feelers out for domestic opportunities. Related Story
Even as it explores international opportunities, SkyWest is not letting opportunities in the North American market lie fallow, however, since it made a bid on acquiring ExpressJet as part of capacity purchase deal it cut with Continental. Related Story He had discounted such regional consolidation just a few weeks ago when he told Regional Aviation News that the opportunity would almost have to come at fire-sale prices. “There is no value in consolidation except the unique situation where the strategic goal is really compelling,” he said. “Otherwise you don’t get an awful lot.”
Atkin pointed to Mexico and Brazil as the fastest growing markets in Latin America. Indeed, according to Embraer, Mexico’s regional jet fleet grew in three years from five to 44 aircraft and from 18 markets to 106. But it is Brazil that Atkin seemed to focus on in a recent interview.
The airline has committed 10 percent of its capital to investing in overseas business. “Putting Europe aside since it is a mature market and we have a unique situation with which we are dealing, China, Brazil and Mexico are all high growth, emerging regional aviation markets,” said Atkin. “We questioned whether we should put in our portfolio some non-U.S. business. We’ve had people approach us for help in building the SkyWest of Brazil or China. We’d help to train people, and, with our purchasing power, we can help to buy things at a lower rate. We would help organize them from a 10- to 20-aircraft operation to a major regional carrier in countries that really need a major regional carrier.”
Atkin sees no real limitations beyond that relating to foreign ownership rules in which it could only achieve a minority role in any overseas operation. He said that China was higher risk owing to the fact aviation is controlled by the government. “Brazil looks as if it is closer to the free market and property rights,” he said. “The government is now focused on spurring economic development and the population is not too much less than the U.S. at two thirds the U.S. population. But all three regions are all high growth and could be quite a bit larger than they are.”
Atkin is not the only person looking South, although aviation pundits call Brazil an airline graveyard. JetBlue founder David Neeleman is launching a new low-cost Brazilian Airline – Azul – using Embraer’s 118-seat E-195 as its platform. Born in Brazil, he does not face the 20 percent foreign investment limitations and thinks the market could be two to three times larger than it is now with only two carriers. TAM Linhas Aereas SA and Gol Linhas Aereas Inteligentes SA control 90 percent of the market with fares 50 percent higher than in the United States. In addition, like the U.S., Brazil has no European-like networks, meaning the alternative is long, interminable bus rides. As he did with JetBlue, he will offer more non-stop flights at lower costs, targeting fares at just above that for buses. Azul would launch next year with plans to begin with three aircraft serving domestic markets, growing to 76 aircraft and, possibly, international service.
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