Listen in to this exclusive interview with JetSMART CEO Estuardo Ortiz, recorded live at Routes Americas 2024 in Bogotá. Ortiz discusses the Chile-based ULCC's ongoing expansion, including its network strategy, fleet plans and partnership with American Airlines.
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Rush Transcript
David Casey:
Hello everyone and thank you for joining us for Window Seat, our Aviation Week Air Transport podcast. I'm David Casey, editor-in-chief of Routes. Welcome aboard.
For this week's episode. We're recording live from Routes Americas taking place in Bogota, Colombia. I'm delighted to be joined by Estuardo Ortiz, the CEO of Chile based ULCC, JetSmart. Estuardo has been the CEO of the Indigo Partners-backed airline since it was founded in 2016. After launching commercial operations in July 2017, the carrier has grown to serve eight countries in Latin America and have subsidiaries in Argentina and Peru, and most recently here in Colombia. The airline's all-Airbus fleet is one of the youngest in the Americas and the ULCC has ambitions of transporting 100 million passengers by 2028. Estuardo, it's a really impressive growth story and even more so when you think that the pandemic disrupted the expansion plans that you had since you launched. Can you just tell us how you managed to steer JetSmart through the Covid crisis, so you were in a position to continue expanding once conditions improved?
Estuardo Ortiz:
Yeah. No, thank you very much, David. Happy to be here with you. Absolutely. I mean, we were still in the startup phase honestly, when the pandemic hit. We had 17 aircraft back in January 2020, and then the pandemic hit and we had already ordered more than 80 aircraft. So of course we had to stop, renegotiate, restructure the fleet plan and then take a guess, when do we start taking aircraft again? We really thought that mid-2022 was a conservative date, so we aligned everything to that. I'm happy that we actually took that decision. It felt at some times that we probably went too long. But no, the pandemic, as everybody knows here in South America particularly, Chile, Argentina was very hard and restrictions were still in effect in the first half of 2022. The last restriction in Chile, for example, left, was left over I think in October 2022.
So it was in hindsight a decision well taken and it was in July of that year when we received our number 18. That was our first A321neo, and since then we've been growing very fast. So where? Well, we expected domestic markets to recover quicker and therefore we worked hard during the pandemic to open a new AOC in Peru, which we did. So by June 2022, we're back. We're back in growth mode. We have an AOC in Peru. We launched domestic operations in July. And since then to today, we have doubled the size of the fleet coming from 17 to 35. We've launched 26 new routes, and we have grown passenger about 100%.
David Casey:
It's an impressive story, and as I said at the start, you just launched another AOC here in Colombia. Can you tell us a little bit about why you decided to enter the Colombian market? We've seen some turmoil here. In the past year or so, we saw Viva and we saw Ultra exit. Did you have ambitions to launch here before the exit of those airlines or was it taken as a more reactionary measure because the ULCCs had disappeared?
Estuardo Ortiz:
All I knew at the end is that the pandemic was going to bring changes to the region—12 airlines in the region are not operating anymore, that were operating before COVID-19. So consolidation has opened up opportunities. We didn't know exactly which were those were. We just thought we need to be ready for them in 2021, 2022. In Peru, it was difficult to enter. It was seven airlines, no space at the airport. Now after the pandemic, there were two left, so we thought this is the time to do it. A third airline in Peru, definitely it's the time to do it. There was a space in Lima Airport. Now we see the expansion of Lima Airport making progress and now we have security. An important market in the region.
In Argentina, it was a similar situation in the sense that we were already operating in Argentina against six airlines. Now it's only two. So competition has changed dramatically and Colombia was the same thing. We were not sure exactly at the end of 2022, how the Colombian market will change, but we thought it will change and it did. So it's been a combination between being ready to act quickly, watch the market change and act when we have the chance. Honestly, that's been more so than figuring out we're going to be in Colombia, was identifying opportunity. It might happen. Let's get ready. And when it did, we just jumped into it.
David Casey:
You said that competition has changed, but your competitors have also changed. So here in Colombia, Avianca and LATAM both restructured during the pandemic, they managed to lower their cost base. How as a ULCC have you managed to, one, keep your costs low, but two, how do you envisage competing against these legacy carriers that now have a lower cost base than they did prior to the pandemic?
Estuardo Ortiz:
Well, JetSmart as a ULCC is focused on cost. That's our most important goal. There is no doubt about that. It's very straightforward, pretty clear. We used the pandemic as well to change many things, and we came out with lower cost structure. So I'm confident that we can compete. We can compete especially on short segments—we can definitely compete against any airline. Where we see or cost indicators against the best in class in the world, we're there. And again, my view is not competing against those airlines. My view is thinking about the transportation market—so people who are now traveling by bus, by car, by train. So far, we've carried 25 million passengers. All of those are incremental volume. We haven't taken a single passenger from the competition. The trip per capita in the region is too low. I don't think it's going to be like Europe, but Europe is like eight times bigger. It just needs to be few percentage points bigger for us to capture.
David Casey:
So what needs to happen though to increase that trips per capita? One thing that whenever we have a conference here in South America, we seem to find ourselves talking about taxes and talking about government influence. But it seems that the aviation industry knows that things need to change, but it doesn't seem to be changing. How can JetSmart, how can airlines, make sure that the message cuts through to governments?
Estuardo Ortiz:
First of all, it's a process. After the pandemic, I see countries more concerned about aviation. They know that they can from one day to the next lose capacity and how critical it is for tourism, how critical it is for connectivity, for development. So I think it's a good opportunity to push for this. Brazil is a good example. They did it. Chile is a good example. They did it. But the reality that matter today is that in countries like Colombia, you can actually pay $100 of airport fees and taxes for your international ticket, where in Brazil you pay $11. That's a huge difference. That's the difference between the stimulation, no stimulation. So I think following the example, making sure that airlines like JetSmart are very active. It doesn't really help you if you lower your taxation, but the fares remain high. It's got to be both. And then that family of five kids will travel for leisure because they can afford it.
David Casey:
Are you seeing things change though? You mentioned the Brazilian market where the taxes are lower and we've seen in Argentina in recent months, there's been a change in government and there's been a lot said by the new president that he wants to open the skies and he wants to encourage new airlines, new competition within the country. How do you see the landscape evolving and do you think some governments are now taking heed of what airlines have been trying to tell them?
Estuardo Ortiz:
Yes, I think so. I think we're in a moment in time that we can use it. We can seize the opportunity. Argentina is in the process of change in so many ways. The policy of the government regarding aviation has been very protective for a long time. It’s a tremendous opportunity for Argentina to get modernized, to make a regulation that allows everybody to allocate aircraft, fly new routes, access airports. The policy of Aerolíneas Argentinas is key as well. So it's been 100 days since President Milei took office today and clearly it's without controversy, but the way that we see it is that he's taking steps in the right direction and we might see quite a different landscape in Argentina before the year end.
David Casey:
And if that happens, would JetSmart think about increasing its operations in Argentina?
Estuardo Ortiz:
If the conditions are right, yes. We've been investing in operating in Argentina since 2019. So we have again, a very large order book and definitely we can take advantage of the opportunity if the conditions are right.
David Casey:
Are there any other markets in the region where you see strong growth potential? I know you recently launched routes to Ecuador for the first time, and I think the Ecuadorian government as well has been very open and very keen to introduce new competition to the market. Are there any standout countries either that you don't operate to or would like to operate to in the future that have these progressive policies in place?
Estuardo Ortiz:
That's exactly what we are looking for. So Ecuador is a good example. They've been working already for quite a while to improve their policies, reduce taxes and look at that. Now their traffic is up. One of the few countries in South America that international traffic is up against the pandemic, the pre-pandemic levels. So we're happy to start in Ecuador—there's an opportunity to come. We're expanding internationally also to Brazil, several cities and now we're serving eight countries. So it's only Bolivia and Venezuela left, and I think those probably will come this year.
David Casey:
You serve in eight markets, as you said, and I think about 70% of your capacity is currently domestic. How big an opportunity is there to expand that international connectivity?
Estuardo Ortiz:
I think there's a tremendous gap on opportunity internationally. Look at the numbers. If you see domestic, South America is 3% above pre-pandemic levels and 10% below international. Colombia is the only one that is above and that brings the average to a decent number. So every international route we have opened in the past year and a half has been very successful. So we are definitely looking forward to seize that opportunity. We'll probably look at a JetSmart by the end of this year that's more of a 40% international, 60% domestic.
David Casey:
You said you've just gone to 35 aircraft in your fleet. Now I know you're backed by Indigo Partners, which obviously has stakes in other airlines like Frontier, Wizz. What's the ambition to grow your fleet to? When do you expect to be getting more aircraft within the fleet?
Estuardo Ortiz:
Yes. Well, we will continue to receive aircraft through this year. Our goal is to get to 100 by 2028. We might be there, or very close in my view. So steady growth until then. Building the footprint has been key. Now we feel comfortable. What we have is to build scale and seize opportunities. So as I said before, we'll look into our international routes. We'll have an eye on what happens in Argentina because it could become big. It's a big country, it's 48 million people. It only has like 0.6 trips per capita. It could be the case that we end up growing more than we expected. But the key thing for me in this is just to be very flexible, be very agile, nimble organization that can move quickly and take advantage of the market. It's a very changing market still.
David Casey:
I guess that flexibility was one thing that a lot of airlines learned during the pandemic, and I guess it was no different for JetSmart?
Estuardo Ortiz:
No different for JetSmart. I mean, we had to be super flexible. Imagine, our sales go down 95%. We're flying three out of 17 aircraft. We don't know where to fly them. Because there was no way for you to know. It got so intense, to give an idea, that we will schedule flights for the next two days. We didn't know where we're going to be flying in the next two days because we don't know if there were passengers. Because people have such a short window of advanced purchase that we had to be very fast. And all of those challenges develop muscle in the organization that now we can use to react quickly when there's changes in the markets.
David Casey:
And do you have all the capacity that you need at the minute? I know you operate A320-family aircraft, which we've seen groundings because of the Pratt & Whitney GTF issue. Is that affecting JetSmart? And how have you had to respond and react because of that?
Estuardo Ortiz:
Look, now it's a much clearer situation. We know exactly what's going on and we have incorporated those assumptions into our planning. So the fleet, we've been adjusting to make sure that we continue growth. So as of now, we're comfortable with what we have for this year and next year. Yes.
David Casey:
That's good to hear. Let's move on and talk a little bit about American Airlines, which we haven't mentioned yet, but they're a minority shareholder in JetSmart, and you've already launched some codeshares with them from Santiago and from Lima. How has the market responded to that? How have passengers responded to a ULCC partnering with a legacy airline?
Estuardo Ortiz:
So far, so good. We started in June and then September, so it's been a few months. But the response from certain markets has been tremendous. Example, Cusco. So the American Airlines connectivity, bringing tourists from the US or the parts of the world into Lima, then JetSmart taking them to see Machu Picchu, that's been extremely successful. So we're just beginning. We still need to implement Argentina and Colombia this year. We would like to also this year implement the Advantage Miles program into JetSmart. So the partnership is just beginning. It's a process. We need to make sure that every step of the way is well done. We're developing new technology in order to have a ULCC linked with a legacy carrier. So that takes time. But so far it's going well.
David Casey:
Do you think we'll see more of that in the market? Maybe not necessarily in the Latin American region, but do you think there're going to be more partnerships where we see a full service carrier partnering with the ULCC like you and American?
Estuardo Ortiz:
Look, I think it's an interesting concept because these are such large networks of aircraft and assets and passengers that fly with one business model, which is not connected to the other business model. I think it's a tremendous opportunity globally to improve product connectivity, revenue, sustainability for aircraft for airlines. But it's probably too early to say how the American Airlines-JetSmart example will be adopted by others. Maybe in a year or so, we are in a better position to share more of the learnings and the inroads we have been able to make. But that's the view. Keep the ULCC a ULCC, which is one of the reasons why ULCCs don't want to do it. And two, make sure that your model to the customer service of the legacy carriers.
David Casey:
And finally, just one more question before we finish. Where do you see JetSmart in five years’ time?
Estuardo Ortiz:
Oh, well, I like to get to those 100 million passengers. I mean, this is something that I thought about back in 2016 when starting the airline. So I really want to see it happening. I think it's possible, we can definitely get there, set up a footprint for another 100 more after that.
David Casey:
Estuardo, it's been fascinating to hear about the growth of JetSmart so far, and we look forward to seeing how the story progresses as you increase your fleet and continue to expand into new markets. Thanks for your time today. Thanks to our producer, Cory Hitt, and thanks to you, our listeners. Don't forget to follow us on Apple Podcasts or wherever you listen. Until next week, this is David Casey, disembarking from Window Seat.
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