Aerocon: Bolivia’s Rising Star

A Regional Airline Fills Gaps In Bolivia’s Air Transport Industry

An up-and-coming leader in the skies of Bolivia, the regional carrier Aerocon has grown rapidly. José Luis Añez — Aerocon’s CEO and primary shareholder — provides the benefit of his experience in relating the history of Aerocon as well as outlining the carrier’s greater strategy and discussing its burgeoning opportunities to thrive with modern technology.

As chief executive officer of one of the fastest-growing regional carriers in South America, I’d like to explain Aerocon’s underlying organizational features and share our corporate history, fulfilling our role as we evolve into a genuine and remarkable rising star in air travel.

From the very beginning, Aerocon has followed the growth pattern of a striving and continually improving regional carrier.

The idea behind Aerocon grew out of my experience in airline planning. That background helped nurture me. It allowed me to learn the business and thoroughly analyze and identify the fact that this was an untended segment of the industry — one that would surely succeed in Bolivia.

The story actually began some years ago when I worked in the Aerosur planning area. At that time, Aerosur was one of the largest airlines in Bolivia.

There came a point, however, when Aerosur basically stopped serving this small regional segment. I viewed this moment as a significant business opportunity.

Shortly thereafter, I left Aerosur and dedicated myself to other businesses while studying for my master’s degree in business administration.

The basic idea behind Aerocon was then taking shape in my mind, and a group of fellow classmates and I put our heads together to build an airline business plan (which, in fact, won an Entrepreneur Ideas Award that was run by a weekly economics magazine).

I have actually been quite fortunate, even “lucky,” if we define luck as the intersection between opportunity and timing.

In 2004, a regional airline ceased operations, leaving a considerable gap in the Bolivian regional market. This vacuum was immediately occupied by a company that had an airplane and the license to operate but, quite frankly, required an organizational structure.

On the other hand, we — and by “we,” I’m referring to myself and my group of businesspeople — had the business plan ready.

We had the opportunity to join together, and a corporation named Aerocomercial Oriente Norte Ltda. (or as the airline is now better-known, Aerocon Ltda.) was born.

Aerocon started operations on June 9, 2005. We’ve been in business for eight years. During that time, we have lived and navigated through all kinds of business experiences.

Our Business Model

The business model we have incorporated at Aerocon is not new at all. In fact, it is a widely used model that has proven successful in more-developed markets.

Aerocon, again, is and always has been a regional airline. We operate with eight Fairchild Metro aircraft carrying 19 passengers each, with a fleet of 11 airplanes that will gradually enter into service.

We are fully dedicated to serving the corporate segment. As such, most of our customers are business travelers. We meet those business travelers’ primary need, which is the ability to travel between the cities in which we operate, with the possibility to go and return the same day. To that end, we offer high-frequency flights.

Fairchild Metro Aircraft

Bolivian-based regional airline Aerocon operates a fleet of 19-seat Fairchild Metro aircraft. Fully dedicated to serving the corporate segment, most of the carrier’s customers are business travelers.

Our Expansion Plan

We have a well-thought-out expansion plan and defined objectives for growth.

But it must always be noted prominently that this industry has far too many variables that are beyond our control. And that fact alone prevents us from making a long-term projection.

The Bolivian market has never had a true regional airline — as Aerocon is designed to be — and our management team has decided to keep the business model as it was originally created.

Aerocon plans to continue to grow with the same aircraft type — an approach that introduces its own complexities and challenges. We are not looking to introduce larger capacity aircraft in the Aerocon fleet, at least for the next five years.

Among our strategic directions for Aerocon is the creation of new routes to accommodate a very competitive environment. The state has assumed a high-profile role in Bolivia’s commercial aviation — through the state-associated TAM airline — with its larger airplanes and lower prices.

As a result, we have been obligated to redefine part of Aerocon’s strategy and expand to emerging markets.

For example, we recently opened a daily Santa Cruz-Oruro route. The Bolivian government has just established an airport in Oruro, and no airline has even considered regular flight operations there for more than 30 years. Lloyd Aero Boliviano operated from Cochabamba to Oruro, now we go from Santa Cruz.

Our thought is to try to develop demand in these previously underserved markets, and Aerocon is investing in this type of service for the long term.

Working with the Oruro community, in fact, has been very interesting.

We have seen, for example, that it is a market with very few travel agencies. Most tickets are sold directly at the airport — often just minutes before the flight — a situation that naturally leads to delays and makes flight planning very difficult.

From a business standpoint, all these characteristics indicate that there is a keen need to develop the market. Among other things, this means we need to have more points of sale and learn more about the passengers and their individual behavior.

The challenges may be interesting, but learning and understanding is imperative to business success.

Another route Aerocon has just started flying is Santa Cruz to Potosi, and we’re also flying Potosi-La Paz — another new market for us.

There is a historic pattern to study in these markets because the government in Potosi had its own airline and government officials realized, quite logically, the need to bond with the rest of the country and attempted to do so by acquiring and operating airplanes.

As in all businesses, however, some things are possible and others aren’t. So, in this case, the Potosi air-operations project proved short lived.

Next, Aerosur and Amaszonas moved into Potosi but those airlines failed to properly develop the market, so that is what Aerocon is now trying to do. And we’re extremely confident of our ultimate success. We simply need to be prepared to persevere in the market.

Our expansion plans include entry into numerous other competitive markets, where we will compete not only with local airlines but also with several global carriers.

Our Business Strategy

At Aerocon, we believe our strategy has been successful, but there has clearly been a “before and after” when it comes to evaluating Aerocon’s performance in Bolivia.

We are trying to provide passengers with a way to not only visit cities that offer multiple business opportunities, but also return in the same day.

Application of this strategy has produced market growth, with a very interesting multiplier effect — particularly on Beni region routes, where we have been saluted as “Beni’s flag airline.”

We have contributed to the development of transportation in this region, since businesspeople previously had to plan on two to three days to visit these cities. However, now they can go in the morning and return in the afternoon.

Aerocon offers five daily flights in some places and three daily flights in others; whereas previously airlines only flew three times per week to some of these destinations.

This frequency of flights has allowed us to gain the preference of passengers; even though there is a fare difference (operating our turboprop equipment is more expensive).

Our Aerocon market research indicates that on less-than-3-hour flights, the traveler prefers itinerary over price, and we have designed our itineraries accordingly, giving us an important competitive advantage.

This strategy has worked quite well in some markets and not in others. In some cases, Aerocon has encountered a great deal of fierce competition.

Furthermore, Aerocon has conducted multiple demographic studies, through which we have gained a great deal of understanding of our target passengers’ income per capita, and where the communities of interest are, among other extremely valuable knowledge.

In the final analysis, however, a carrier must simply devise flights and design a marketing strategy, then wait and see it if works.

At Oruro, for example, we took what we feel is a very sound business decision. Now we have to give people time to get used to it and evaluate the business results.

A Clear Advantage: Our Employees

Perhaps I am overly prejudiced in my judgment, but I truly feel that the best thing about Aerocon is its people, and the unabashed love our people show toward the company. It is often said that the company is successful, but in reality, it is the people who make that success possible.

Aerocon has struggled through difficult times, but our people have found an identity with the company. This identity has strengthened their desire and resolve to move forward.

The global aviation and modern transportation industry absolutely requires hard work from all of us.

I have personally seen our crew people, our ramp people and our technicians, our booking agents and all the other staff working hard and, at the same time, feeling great about belonging to a company that has fought to be where it is and continues to rise in the market.

Filling A Gap

Aerocon Chief Executive Officer José Luis Añez seized the opportunity to create Aerocon to fill a gap in the Bolivian regional market after a regional airline ceased operations in 2004. His experience in the planning area of the now defunct Aerosur gave him the business knowledge to launch a successful airline.

Our Strategic Partners

Along the way, we have been fortunate to have very important, very critical strategic partners — people and companies that have been vital to Aerocon’s success.

Some of them have been aircraft-leasing companies that believed in us even when this was a new project, and we simply needed to rent our first plane.

Now, here we are, eight years later, at a time during which the country has gained unprecedented economic stability.

There are many people and companies that have bet on our success. This includes travel agencies, which we consider our strategic partners, especially in a country like Bolivia where access to the Internet and the use of credit cards is still very limited.

In Bolivia, the travel-agency channel is very important, and it will remain so for some time.

This vision and understanding of the market was one of the factors — among other issues — that strongly influenced our decision to start working with the global distribution system (GDS) and bring to travel agencies the comfort and tools they need to properly do their jobs.

The GDS

Today, Aerocon’s full content is distributed through the Sabre® global distribution system.

It took us seven years to make the decision to participate in the GDS. Previously, we thought it wasn’t necessary for serving a domestic market, as there are other solutions that are quite practical and less expensive. However, they definitely involve more-complex processes, both for us and for travel agencies.

The Sabre GDS was not unknown to us. I personally knew it very well — its advantages and disadvantages — not only from Sabre Travel Network®, but the GDS in general.

Among its main advantages is the ability to reach and access other markets. Our expansion plans were and are to reach the most competitive markets, where there are lots of travel agencies that cannot be attended or managed without the support of a GDS.

This was one of the reasons we decided to participate in the GDS.

Our old reservations system was locally tailored. It was good, but it had considerable limitations, especially with the installation and updates processes. The system had to be installed on every computer in each of the different travel agencies, which required extensive logistical effort and expense.

This led us to evaluate and migrate to other Web-based tools, but the result was always a need for larger bandwidth. And in most places in Bolivia, there is a lack of connectivity, which proved to be a major drawback.

Another considerable piece of business we had to manage as part of the former system was the collection process. We had a contract with each travel agency, which had to be managed in conjunction with payment warranties. We were required to go personally to each agency to collect money.

This often meant going one day and being asked to come back the next day to pick up the check. This model also required maintaining large logistics capabilities.

Obviously, all these problems immediately disappear with a GDS, which is linked to IATA’s Billing and Settlement Plan (BSP).

Another limitation we had before participating in the GDS was the difficulty faced by the travel agencies when they made a reservation and tried to complete the sales process. They had to access a different booking system for each airline. This hindered the sales process, in addition to taking more time.

Fortunately, all this changed for Aerocon when we started using the Sabre GDS, although travel agencies in Bolivia still have to enter information into several booking systems because Aerocon is not considered a “big player” in the market.

Aerocon has, after all, only 8 percent of the market share, and there are still other airlines that do not participate in the GDS. However, at the moment, travel agencies appear to be quite content with the participation of Aerocon in the Sabre GDS.

Our incorporation into the GDS has contributed to increased sales, but the exact amount is difficult to quantify. Among the things we should not forget is, at least for us, one more passenger on each flight represents an increase of 5 percent, as we fly 19-passenger aircraft.

When we started with the Sabre GDS, we were in the high-peak travel season, and we saw a great increase. In fact, we tripled the number of travel agencies with which we work from about 40 to more than 120.

But to specify the percentage or amount that our sales have grown is, again, very difficult — especially in a market as variable as Bolivia. In other cases, the sale has moved from one system to another because, on some routes, we are the only airline operating. And we also knew we would not necessarily create new passengers through participation in the GDS.

The truly important thing is that in the markets in which we compete with other airlines, travel agencies can now choose between selling through a very complicated system or selling quickly and easily through the Sabre GDS.

We’ve seen this happen even in cases in which there is a significant fare difference.

Now we are developing global channels. Previously, we did not have any international exposure. We are starting to learn and understand how to sell through the GDS worldwide, which we must do to gain a greater market share.

We sincerely believe there is a great deal more potential to develop, and working with the GDS, we definitely look forward to finding out.