LCCs in Central America aviation: 8% penetration rate means enormous upside. Volaris leading the way

Low cost carriers (LCCs) airlines are finally starting to penetrate the intra-Central America market, driven primarily by the launch of the region’s first local low-cost operator.


Mexico’s Volaris launched a subsidiary in Costa Rica at the end of 2016 and the new airline has so far launched five routes – all of which are international routes within Central America that were not previously served by low-cost airlines.

Travel within Central America, which has a population of 45 million, has always been inhibited by high fares and a lack of competition. For the first time, six of the main city pairs within Central America how have low-cost option, with five served by Volaris and one by Copa’s new brand Wingo.

Central America should continue to experience a surge in new low-cost flights as it is one of the world’s most underpenetrated markets. However, high taxes and airport costs remain a major impediment to growth.

Central America’s LCC penetration rate is less than 8%

Central America comprises seven countries – Belize, Costa Rica (4.8M), El Salvador (6.1M), Guatemala (16.3M), Honduras (8M), Nicaragua (6M), and Panama (3.9M) – with a combined population of 45 million (as of 2015). While each country is relatively small, the region overall is relatively large and should, in theory, be able to support more flights – particularly LCC flights.

Central America has approximately 900,000 weekly seats, including less than 70,000 LCC seats. This results in an LCC penetration rate of less than 8% – which is among the lowest of any region or subregion in the world.

Mexico-based Volaris initially entered the Central American market in 2015 with the launch of services from Mexico to Costa Rica and Guatemala.

Volaris currently operates 16 weekly flights from Mexico to Central America, while its sister airline Volaris Costa Rica operates 18 weekly flights within Central America. Of the 10 Central America routes operated by Volaris or Volaris Costa Rica, only one is also served by another LCC (Mexico City-Guatemala City, which is also served by Interjet.)

Central America is currently served by 10 LCCs, only one of which is based in the region.

Volaris Costa Rica became Central America’s first local LCC when it launched operations in Dec-2016 with an A320 operating from San José in Costa Rica to Guatemala City. Volaris Costa Rica has since also commenced services from Costa Rica to El Salvador and Nicaragua, and from El Salvador to Guatemala and Nicaragua.

Costa Rica-US is the only country pair with significant LCC capacity

In addition to the four Latin American LCC brands, Central America is served on a year-round basis by three US LCCs – JetBlue Airways, Southwest Airlines and Spirit Airlines – and two Canadian LCCs – Sunwing and WestJet. There are also seasonal services from a few other US and Canadian LCCs.

Spirit, which has been serving Central America from its Fort Lauderdale base for over a decade, has a similar amount of capacity in Central America as Volaris, with slightly more than 12,000 weekly seats (based on OAG schedules for the week commencing 10-Jul-2017). Spirit serves six destinations in Central America (every country except Belize), which is more than any other LCC, although only Costa Rica is served daily.

Southwest, which flies to two destinations in Costa Rica and one destination in Belize, has almost 11,000 weekly seats to Central America. JetBlue, which has two Costa Rican destinations, is much smaller, with slightly more than 5,000 weekly seats. Sunwing and WestJet combined have between 1,000 and 5,000 weekly seats, depending on the time of year (both only serve Costa Rica).

With the exception of the Costa Rica-US market, Central America is underpenetrated by LCCs. Costa Rica-US currently accounts for approximately one quarter of total LCC capacity in the Central American market (and more during the peak winter months); the LCC penetration rate in the Costa Rica-US market is more than 25%.

Panama is the only Central American country that is well served generally

With the exception of Panama, the Central American market is under served generally.

Panama has approximately 400,000 weekly seats – representing nearly 45% of total Central American capacity – as it has successfully developed Latin America’s largest hub for international transit traffic. The Copa Airlines Group accounts for a dominating 82% of capacity in Panama, but a majority of its traffic consists of sixth freedom passengers travelling between the four different regions of the Americas (North America, Central America, the Caribbean and South America).

In the other six Central American countries, most traffic consists of local, rather than transit, passengers. The only other country with a hub and significant transit traffic is El Salvador, but San Salvador Monseñor Óscar Arnulfo Romero International Airport is one quarter the size of Panama City’s Tocumen International Airport.

Panama is a very different market from those in the rest of Central America, due not only to the strength of Copa’s hub, but also because Panama is not included in Central America’s common aviation market. Belize, a tiny country of less than 1 million people with a small aviation market that is mainly only served from the US, is also excluded.
The Central American Common Market is particularly under served

Costa Rica, Guatemala, Honduras, El Salvador and Nicaragua are considered one aviation market, and have been part of a regional economic association – the Central American Common Market (CACM) – since the early 1960s. These five countries enjoy full open skies and single aviation market status (similarly to the EU), enabling an airline based in one country to operate services between two other member countries, or from another member country to outside the region.

The five CACM countries have a combined population of more than 40 million but despite their liberal approach to aviation, they have less than a half million seats. The CACM governments has long complained about a lack of air service and high air fares, which have impacted economic growth and tourism.