FLUG REVUE October 2006: TACA thrives with Airbus fleet

October 2006

TACA THRIVES WITH AIRBUS FLEET

By Andreas Spaeth

Every country as small as this one in Central America has operated its own airline for many years, yet many of them remain unsuccessful financially and are doomed to failure. It is in the very smallest state of Central America, a country that was also reeling from many years of civil war up to 1992 and is still grappling with security problems that a positive breakthrough has occurred: in El Salvador. Six million people are packed into this country, which also has several millions of exiles resident in the USA.

Airbus A320 TACA

The origins of the airline date back to 1931 when New Zealander Lowell Yerex founded a cargo airline in neighbouring Honduras with the name “Transporte Aéreos Centroamericanos” or TACA for short. With one single-engine Stinson he transported cargo on behalf of the government. In 1939 the airline moved its base to the neighbouring state, where it became known as TACA El Salvador. From here it extended its services, in part through subsidiaries, to Guatemala, Nicaragua, Costa Rica and Panama, finally adding Colombia and Venezuela in 1943. The guacamaya, a colourful species of parrot which is native to Central America, was chosen as the company's mascot and remains the TACA logo to this day. Passenger and cargo operations flourished with a fleet of Ford 5-AT TriMotors, DC-3's and Lockheed 18 Lodestars.

Then in 1960 the airline caught the attention of Ricardo Kriete, a Salvadorian businessman who lived in the USA. He acquired a majority shareholding and renamed the airline TACA International Airlines which, although registered in El Salvador, was headquartered in New Orleans. The fleet was now expanded to include DC-4, DC-6 and Vickers Viscount, while most of the cargo was carried by the Lockheed L-188F Electra. The year 1966 saw the beginning of the jet era at TACA when it added four BAC 1-11's from the United Kingdom to its passenger fleet, which at that time consisted solely of Vickers Viscounts.

In 1982 the company moved its headquarters from New Orleans to the city centre of San Salvador. During the years of war which characterised that period, the inconspicuous location in the back building of a supermarket proved an advantage, and the TACA management team still resides there to this day. In 1983 TACA founded its own maintenance subsidiary called Aeromantenimiento, or Aeroman, for short, at San Salvador airport and today this is an extremely successful business which even undertakes major checks on A320's operated by JetBlue and USAirways.

Andrés Garcia, commercial director of Aeroman, recalls, “Before that, our maintenance work was carried out in the USA.” But in the mid-1980s the fleet began to expand on a grand scale so that it became necessary for TACA to have its own facilities. “At that time TACA was flying its first three Boeing 737-200's plus one Boeing 767-200 as well as the two remaining BAC 1-11's,” Garcia continues.

Later TACA extended its wide-body fleet to up to five Boeing 767-200's and -300ER's. “At that time they were mainly deployed on our main route to Los Angeles, where most of the expatriate Salvadorians live,” Garcia explains. As the wide-bodies could not be filled from the San Salvador catchment area alone, intermediate stops were introduced in Guatemala or Belize with the aim of picking up more passengers. In a region which has a poor accident record, TACA is a positive exception, having never sustained a fatal accident.

In 1994 TACA was carrying a million passengers per year and operated a fleet comprising three Boeing 737-200's, four 737-300's, two 767-300ER's and one 767-200. Meanwhile Roberto Kriete, grandson of the first Salvadorian proprietor of the company, had taken over as CEO, in which role he continues to this day. The Kriete family still owns 97% of the TACA Group.

The airline began to acquire shares in less successful, mostly state-owned companies in the region and to increasingly integrate these partners through codesharing arrangements, reciprocal aircraft leasing, joint brand identities and centralised management. In 1992 TACA as a Salvadorian company was still competing with five other small competitors operating from neighbouring countries. By 1997 most of these had been incorporated into the newly created TACA Group.

TACA succeeded in acquiring shareholdings of between 10 and 49 percent in Lacsa, Aviateca, Nica and Sahsa of Honduras and in operating in all the participating countries under the name of TACA. The other important airline of the region, Copa of Panama, belonged for only a short period. Only in Peru did TACA venture into a new company, taking over 49 percent of TransAm Airlines, which had been founded in 1999 and has flown under the name of TACA Peru since July 2000. Possible further expansion in Ecuador and Venezuela has so far not materialised.

Just as LAN today calls itself Latin American Networks, TACA has also changed the meaning of its name and now trades under the name of Transportes Aéreos del Continente Americano. In so doing, it is promoting its claim to be an airline that operates throughout America. Altogether it now flies to 35 destinations in 19 countries, the route network extending from Toronto to Buenos Aires and from San Francisco to Santiago de Chile. The most important hub is San Salvador, mainly because it has the fewest operational restrictions.

“The airport is at sea level, it has a three-kilometre long runway and is never closed due to poor weather,” says Alfredo, praising its advantages. Moreover, there is sufficient capacity in the terminal. So far the airport has had around 1.6 million passengers to deal with. Other hubs are San José in Costa Rica and Lima in Peru. “Our most important markets are the connections between Central America and the USA and Canada,” explains Schildknecht. Some 40 percent of the 3.5 million passengers expected for 2006 consist of private family visits, and are known as “ethnic traffic”. The strongest routes are Los Angeles, San Francisco, Washington DC and New York. The remaining 60 percent are divided equally between holidaymakers and business travellers.

“Most of our routes are known as “thin” routes,” says Alfredo Schildknecht. The average distance flown by TACA passengers is just under 2,900 kilometres. However, the routes flown by TACA are on average only 1,900 kilometres long, which means that most passengers have to change planes to complete their journey. Apparently no one has come up with the idea of travelling from, say, New York to Santiago with TACA and several changes of aircraft, “but from Lima to Washington via San José we have the best connection,” according to Schildknecht. The average fare is around $200 per route. On short Economy Class flights no food or drinks are served, while on longer segments free drinks and small snacks are served as a minimum.

“On 98 percent of our flights we are competing against other airlines,” Schildknecht reports. This suggests that entering into teaming arrangements would make sense, and in fact TACA was allied with American Airlines for eight years. However, “It was not a successful partnership, there were major problems.” Since June TACA has switched over to the United Airlines camp, and the two airlines now offer 18 codeshare destinations. By the end of 2008 a majority of the overall route network will be flown in partnership with United. “This works out very well, we fly to four out of United's five hubs,” says Schildknecht. The possibility of even joining the Star Alliance as a regional member, the first airline outside Europe, is under discussion. At the same time there is some lucrative interline business, especially with Iberia but also with Lufthansa and Air France.

But before TACA can join an organisation like Star, its own integration needs to be stepped up, and this is difficult enough with such a multi-national structure. “We would love to operate as a single operational unit with common Central American certification as in the EU, but that is still a long way off,” Schildknecht is sorry to admit.

The fleet, which is partly owned and partly leased, for example, from an offshore company owned by TACA, is registered in the USA, the only exception being three jets registered in Ireland which otherwise are not allowed to participate in wet leasing for Cubana. “The FAA has been dealing with us as a single company ever since the early 1990s, but even so we have to get the Central American authorities to give their blessing on all technical matters,” says Ernesto Ruiz, one of the directors of Aeroman, the maintenance arm.

Individual aircraft belong to the joint stock companies Lacsa and Aviateca, which still exist as legal entities and whose names and national flags continue to feature in announcements and unobtrusively on the aircraft. “Nevertheless, we are able to swap crew and aircraft with each other,” says Ruiz. “The fact that a Costa Rican pilot is also allowed to fly a Salvadorian aircraft was crucial to us. TACA has a unique flying operation.” There are more countries to be integrated than in the case of LAN, but “we are already at an advanced stage with our integration,” says Alfredo Schildknecht.

Yet only a few years ago the situation was anything but rosy and TACA stood on the brink of bankruptcy. “Between the middle and end of the 1990s, we grew too fast and in too many business areas. As a Central American airline, as a regional carrier, as a cargo airline and also in Peru – it was too much to cope with.”

The losses mounted until, in January 2001, countermeasures were initiated. The route network was slimmed back from 115 routes to 75 (today it is back to about 100), the five A300 cargo planes were sold, stringent cost management was introduced and, above all, the fleet was harmonised. Joining forces with LAN and the Brazilian airline TAM, they had handed one of the biggest orders in aviation history to Airbus at the end of 1997 – over 100 aircraft.

In 2001, the only-Airbus era was inaugurated at TACA. “This reduced our maintenance costs by 50% alone,” says Ernesto Ruiz. The private company, which does not publish any company results, has been continuously in the black since 2002, even if its profits recently dipped. Alfredo Schildknecht is sure of one thing. “Had we not made this change at the beginning of 2001, we would never have survived 11 September.”

The TACA fleet currently consists of 32 jets, all of them single-aisle Airbuses, to which the first two A321's were recently added. TACA is proud of having the youngest fleet in the whole of America, with an average age of only 3.8 years. By the end of 2009 it expects to have 45 Airbus jets in service. “We are assuming that growth will be around 10 percent per year, so we plan to purchase three to four additional aircraft every year,” Schildknecht explains. 26 firm orders and 30 options have been placed with Airbus.

By the end of 2006, TACA expects to make a decision on an order of at least ten regional jets which will replace some of the Airbuses. “The A318 is too big, too expensive and inefficient.” This is the reason Schildknecht gives for the decision to now choose between the Embraer 190 and the CRJ 700 or 900. With those aircraft, the TACA President plans to “open up new long, thin routes, for example to Denver, Las Vegas, San Antonio or Guadalajara.”

From page 24 of FLUG REVUE 10/2006

Last updated 15 September 2006

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