The big three U.S. airlines, United, Delta, and American, have all increased capacity in short-haul leisure markets in Latin America over the past year. However, this strategy has proven to be a weakness as revenue per available seat mile and yield have declined significantly. Both United and Delta executives reported double-digit declines in revenue in the Latin America region, with further declines expected in the current quarter. American, which has the largest presence in the region, is expected to reveal the biggest impact from the market saturation when it reports earnings.
Despite the warning signs, the rush to Latin American beach resorts continues, with all three major carriers launching services to the newly opened Tulum International Airport. Tulum offers an alternative to Cancun, which has seen falling yields and fares in recent years. The average one-way fare to Cancun fell by about 11% between January 2023 and January 2024. The addition of Tulum as a destination has sparked interest in the region, with increased capacity to both Cancun and Tulum.
Cirium statistics also show growth in Caribbean resort destinations, with U.S. carriers increasing capacity by about 18% in the first quarter of 2024. Delta has been a leader in this growth, increasing capacity by 32% in Caribbean resort destinations. The carrier has expressed a desire to challenge American’s dominance in the region. In South America, Delta saw a 32% increase in capacity, while American added just 9% due to its already high presence in the region.
The Bank of America analyst Andrew Didora noted in an April 11th report that the weakness in Latin America routes could limit American’s revenue growth compared to Delta and United. Latin America has been a headwind for American, with risks to its earnings per share guidance. Didora cited multiple factors contributing to this, including a high domestic capacity growth rate, fewer premium seats in its fleet, a smaller transatlantic network, and outsized exposure to Latin America, particularly in the short-haul market.
Overall, the rush to Latin American beach resorts has resulted in increased capacity and competition among the major U.S. carriers. While this has led to challenges in the short term, executives remain optimistic about the long-term outlook for the region. As the industry continues to navigate these challenges, it will be important for airlines to adapt their strategies and focus on profitability in order to sustain growth in the Latin American market.
