Colombia - Good evening ladies and gentlemen and thank you for sparing some of your time with us today.
Aviation plays an important role here in Colombia, the second largest aviation market in South America. Our industry provides essential links which enable access to this beautiful country for business travelers and tourists alike. It also allows for the easy export of such key perishables as cut flowers or tropical fruit.
Today we are releasing our latest figures on the important contribution aviation provides to this country. Air transport directly and indirectly provides around US$ 7.5 billion, or 2.7% to Colombia’s GDP. On the employment side, nearly 600,000 jobs are supported. Details of how these figures break down can be found in the studies.
If current trends continue, we predict passenger figures for Colombia to rise from 30.3 million in 2017 to 68.2 million in 2037.
This increased demand would support approximately US $17 billion of GDP and around 860,200 jobs in the country.
To seize this opportunity, we are calling on the Colombian government to support and facilitate the development of aviation.
To this effect we have had various meetings with government representatives today, including President Duque, during which I raised the following topics:
- Investment in necessary and adequate infrastructure
- Improved air space usage
- Revision of the various taxes imposed on aviation
- Regulatory environment
- Cost of fuel
Let highlight some of the issues …
Despite the investments made in Bogota’s El Dorado Airport over the past years, the airport is operating beyond its designated capacity.
We are therefore glad that the new government has shelved plans for the construction of a new airport in Bogota and will focus on expanding and improving the current facility.
However, the existing contract with the concessionaire needs to be reviewed urgently, in consultation with the industry. Aerocivil’s plan to invest government funds to make up for a poor concession contract is not the solution. Aligning the concession’s incentives with the country’s growth objectives is the better option.
Regarding the actual expansion, we are pleased that Aerocivil is now conducting a comprehensive study on the Bogota airspace with the objective of finding the best solution to safely increase the capacity. Increasing operating hours could also help, as would modernizing airport processes.
A further issue related to Bogota airport is the planned introduction of pre-clearance for US flights. IATA would only support pre-clearance under the following conditions:
- Stakeholders are effectively consulted. This has not yet happened.
- A cost-benefit analysis shows measurable benefits for all stakeholders.
- Studies confirm that operational efficiency and flexibility across the entire airport terminal is not compromised. Our big concern is that increased connecting times at Bogota could compromise the hub’s competitiveness (at the expense of more convenient arrivals in the US).
- Plans ensure that infrastructure requirements for the pre-clearance facility are accommodated in the existing terminal.
Air Space Usage
While the use of the restricted Palanquero military air space for civilian aircraft has been possible since 2017, the current system of “conditional routes” (CDR), could be further improved.
IATA proposes that CDRs are available at all times and only be closed when military operations or trainings are taking place. This will allow airlines to include the route in their flight planning stages, thus increasing the utilization of CDRs.
In addition, IATA suggests extending CDRs to flights departing from Bogota, as potential time, fuel and emission savings are higher as aircraft are ascending.
According to the World Economic Forum’s (WEF) Travel and Tourism Competitiveness Report of 2017, Colombia ranks 134th out of 135 countries in terms of competitiveness. Between 33-47% of the total price of the ticket can be attributed to taxes. Due to fiscal constraints, the current administration has advised that reducing taxes is not an option at this time.
This is shortsighted. The economic value of aviation is not in the taxes it produces. It is in the economic activity that aviation generates. Making connectivity more accessible with lower taxes will spread prosperity. IATA’s studies show that a reduction of the VAT from 19% to 10% will have a positive impact on tax revenue from increased traffic and additional economic activity.
Colombia also has a complex tax structure that entails multiple agencies and the bureaucratic application and exceptions create a significant administrative burden on airlines and cause further confusion and inefficiencies.
Simplifying the tax structure on air tickets can promote growth. For instance, eliminating the exceptions on the stamp tax (impuesto de timbre) will reduce the fee from US$ 26 to US$ 17 per passenger, but still have a neutral impact on tax revenue.
In 2016, the Colombian government implemented a carbon tax on domestic operations which severely impacts the airlines’ bottom line. In 2017, local airlines compensated 99% of their emissions thanks to the possibility to of buying international credits. In 2018, this was restricted to Colombian credits (from Colombian projects) but the supply is way below the demand. As a result, the airlines could only compensate less than 20% of their emissions. It would be ideal for airlines to continue to be able to offset their emissions by purchasing credits from the international market.
The 2017 strike at Avianca triggered a strong reaction from both the public and Members of Congress who took the opportunity to gain visibility by criticizing the sector and pushed for a new bill that would impose stringent consumer protection requirements.
Even though the bill was archived due to lack of consensus in the Congress in June 2019, the possibility remains that it could re-surface in a future congressional session.
To maximize its potential, Colombia should consider adopting international standards without local adaptations.
Fuel prices are high compared to other countries. Overprice of imported product (currently 8% of the total and forecasted to increase) has an estimated annual impact to airlines of nearly US$ 10 million.
Increased competition in fuel supply and imports, improvements required infrastructure that guarantees open access, and a stronger regulation for airport concessions regarding fuel facilities, have the potential to reduce the price gap with countries such as Panama and Peru.
Airlines are in need of sustainable aviation fuels (SAF) to manage their climate change impact. Colombia has a good infrastructure to produce SAF for the aviation sector. IATA urges the government to develop a policy to establish a consistent supply chain of SAF as a way to reduce the aviation industry’s carbon footprint and in turn help the country to meet the Paris agreement commitments.
I call on the Colombian government to act upon our recommendations for the country to achieve maximum benefit from aviation.
I refer to aviation as the business of freedom as our industry allows people to travel and connect with others, either in their own country, region or across the globe. It also enables trade and brings economic benefits for all.
And with proper governmental support, our estimates show that by 2037, the number of passengers in Colombia could reach 153.6 million, with the sector contributing US$ 38.3 billion to GDP and supporting 1.97 million jobs. That is something we can all look forward to!
Thank you for your attention and I will now gladly take your questions.