An analysis of the latent demand for low-cost air transport services in South America

The goal of the present paper is to assess the potential role that low cost air transport services could play in South America. We will briefly review the characteristics of the low cost air transport model, in order to check to which extent existing South American airlines conform to it. The outcome is that this industry generally does not present many of the characteristics of low cost airlines located in North America and Europe. Therefore, there appears to be a substantial market development potential for these services, provided that a more favourable regulatory framework is set up. Such potential market is assessed through a geographical analysis aimed at discovering the main production and attraction points for trips that could be served by low-cost air mobility services in South America. A production index for a given area is then defined on the basis of (1) the size of the population that can afford such a service, (2) the percentage of immigrants within the basin, that are more likely to use low cost services to visit friends and relatives, and (3) the number of urbanites, as a proxy of those people more conveniently located near the airport. A complementary attraction index is defined by looking at the number of tourists that visits the different regions. By combining the two indexes through a simplified gravitational trip distribution model, we individuate the routes that should have the highest market potential for low cost air travel services. The ten most promising routes are all located in the southern part of this subcontinent.