Cheaper Airfares Beckon in Argentina as Macri Scraps Price Floor

(Bloomberg) -- Travelers are about to get cheaper flights in Argentina as President Mauricio Macri curbs price floors that have propped up domestic airfares.

In an effort to boost tourism, the government will allow airlines to drop prices as low as they want for domestic service as of August 15. The rule change only applies to round trips, and customers must purchase flights 30 days in advance. Tickets will go on sale in a few days, Transport Minister Guillermo Dietrich said.

“Argentina was one of the most expensive countries to fly in the region,” Dietrich told reporters Monday in Buenos Aires. The rule change “offers a lot more opportunities for many people to fly.”

The move furthers President Mauricio Macri’s efforts to shake up Argentina’s airline industry. His administration already scrapped price ceilings to attract more international carriers to Latin America’s third-largest economy. Previous governments had put the ceilings in place to shield the state-owned airline, Aerolineas Argentina, which up until recently was the main domestic carrier.

Dietrich said removing the price floor will boost tourism and lead to rising passenger totals for all airlines. The change comes amid declining purchasing power for Argentines after the peso lost 35 percent of its value this year in a currency rout.

Price floors had remained, a move that some airline executives said was intended to benefit bus companies by making it difficult for low-cost airlines to sell travel at bargain prices. The government argued that the floor was losing impact thanks to Argentina’s double-digit inflation.

Low-Cost Opportunity

Low-cost airlines have jumped on the opportunity to operate in the country as Macri’s government pushes to give routes to new players. Argentina’s Flybondi started operating in January with plans to become a discount carrier, and Dietrich said the carrier will begin international air service in October. He added that Chilean airline Jet Smart is expected to start flying in Argentina by the end of the year.

Read more: Last ‘Incredible’ Airline Opportunity Opens in Argentina

Norwegian Air, another low-cost carrier that is expanding operations in Argentina, praised the decision to remove the floor, which varied according to the route.

“This measure will contribute in a decisive way to boost the development of the commercial air sector in Argentina,” said Norwegian CEO Ole Christian Melhus. Norwegian and Flybondi executives were among those who had bemoaned the price floors.

Air passenger traffic increased only 63 percent in Argentina between 2000 and 2016, according to the Transportation Ministry’s presentation Monday. Brazil, Colombia and Chile each saw their traffic rise more than 150 percent over the same period.

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