Avianca says it will 'right size' through bankruptcy, resume flying as coronavirus abates
Avianca is optimistic about its future after the coronavirus pandemic. The second-largest carrier in Latin America plans to restructure through bankruptcy and emerge a smaller, leaner and stronger airline carrying passengers well into its second century.
Bogotá-based Avianca became the largest airline to restructure under court protection since the outbreak of the coronavirus. The company filed for Chapter 11 bankruptcy in New York, where it is listed on the New York Stock Exchange, on Sunday. The airline has been hit by the outbreak of COVID-19 with revenues down at least 80% year-over-year and commercial passenger flying suspended — with no restart date in sight — since the end of March.
But Avianca's bankruptcy should not be read as a sign that the airline industry has no future. Instead, the already financially weak airline plans to "right size" through the courts with the outlook for its core business — air travel in Colombia and Latin America — positive.
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More: What does Avianca’s bankruptcy filing mean for the LifeMiles program?
“In the medium to long term, airline travel is expected to continue to play a key part in the global economy... [Avianca’s] core businesses remain strong, and the challenges negatively impacting their industry will likely abate," the carrier said in a court filing on Monday.
Avianca's LifeMiles loyalty program is not expected to change, at least not yet. LifeMiles is a separate company and not part of the Chapter 11 proceedings. In addition, Avianca says the program is an "important source of profitability and cash flow" for it.
LifeMiles had 9.7 million members at the end of 2019.
However, Avianca itself has struggled as air travel has all but ground to a halt around the world. Data from flight-data firm Cirium shows that global flight activity was down 82% year-over-year on May 9, and down a comparable level during the week prior.
Related: Avianca enters bankruptcy due to coronavirus, will remain grounded
In Latin America, passenger traffic fell nearly 40% year-over-year in March, according to the latest data from trade group the International Air Transport Association (IATA). However, the region did not begin to feel the brunt of the crisis until later in the month.
"We’ve seen a number of airlines failing at the rate they have to burn up [cash]," said IATA chief economist Brian Pearce in April. "The situation is extremely fragile as the recession starts to take its toll."
Other airline restructurings include Virgin Australia and RavnAir, the largest regional carrier in Alaska. However, the latter has ceased operations and plans to liquidate.
Related: Virgin Australia goes bust, enters administration
Avianca's restructuring plan is multi-fold. The airline plans to shrink its fleet that consisted of 158 passenger aircraft and 13 freighters at the end of 2019. The numbers include 10 Embraer E190s that it parked at the end of December.
Initially, the carrier is seeking court authority to reject leases on 14 jets: two Airbus A319s, seven Airbus A320s, two Airbus A321s, two Airbus A330-300s and one Boeing 787-8, a filing on Monday shows. It plans to negotiate further fleet reductions with leasing companies and lenders.
Avianca will also shrink its network. Unfortunately for Star Alliance travelers, the airline plans to close its Peru operation and end its service between Lima (LIM) and Cusco (CUZ), the closest airport to Machu Picchu. The move will leave Avianca's daily flight between Bogotá (BOG) and Cusco, which it operated prior to the pandemic, as the only Star Alliance offering to the Peruvian city.
The move will consolidate LATAM Airlines' dominance in Peru. The Santiago, Chile-based carrier had a 64% share of seats in the Peruvian domestic market in 2019, according to Cirium schedule data. LATAM, a partner of Delta Air Lines, is Avianca's primary competitor in South America.
Related: Avianca celebrates its centenary
When Avianca restarts flights, it plans to focus on its operations in Colombia and Central America. Avianca has large connecting hubs in Bogotá and San Salvador (SAL) in El Salvador, the latter the result of its 2010 merger with TACA Airlines.
Avianca has a three-fold restart plan: one, domestic flights primarily in Colombia; two, operations in Central and South America; and three, long-haul flights with wide-body jets to Europe and the U.S.
Avianca's relationship with its partner United Airlines is a question mark in the bankruptcy proceedings. The carriers have been working on a strategic partnership with Azul in Brazil and Copa Airlines in Panama for several years. However, at the end of March United said it expects to take a "full credit loss" on a $515 million loan it indirectly provided Avianca in 2018.
United could take a larger equity stake in Avianca — or have its financial position wiped out entirely — through the bankruptcy process.
Avianca's restructuring comes just months after it marked its 100th anniversary in December. The carrier is globe's second oldest carrier after KLM Royal Dutch Airlines.
Related: Azul could join giant Latin America alliance sought by United, Avianca, Copa
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| 4X | Earn 4X Membership Rewards® points per dollar spent on purchases at restaurants worldwide, on up to $50,000 in purchases per calendar year, then 1X points for the rest of the year. |
| 4X | Earn 4X Membership Rewards® points per dollar spent at US supermarkets, on up to $25,000 in purchases per calendar year, then 1X points for the rest of the year. |
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There’s a lot to love about the Amex Gold. It’s a fan favorite thanks to its fantastic bonus-earning rates at restaurants worldwide and at U.S. supermarkets. If you’re hitting the skies soon, you’ll also earn bonus Membership Rewards points on travel. Paired with up to $120 in Uber Cash annually (for U.S. Uber rides or Uber Eats orders, card must be added to Uber app and you can redeem with any Amex card), up to $120 in annual dining statement credits to be used with eligible partners, an up to $84 Dunkin’ credit each year at U.S. Dunkin Donuts and an up to $100 Resy credit annually, there’s no reason that foodies shouldn’t add the Amex Gold to their wallet. These benefits alone are worth more than $400, which offsets the $325 annual fee on the Amex Gold card. Enrollment is required for select benefits. (Partner offer)Pros
- 4 points per dollar spent on dining at restaurants worldwide and U.S. supermarkets (on the first $50,000 in purchases per calendar year; then 1 point per dollar spent thereafter and $25,000 in purchases per calendar year; then 1 point per dollar spent thereafter, respectively)
- 3 points per dollar spent on flights booked directly with the airline or with amextravel.com
- Packed with credits foodies will enjoy
- Solid welcome bonus
Cons
- Not as useful for those living outside the U.S.
- Some may have trouble using Uber and other dining credits
- You may be eligible for as high as 100,000 Membership Rewards® Points after you spend $6,000 in eligible purchases on your new Card in your first 6 months of Card Membership. Welcome offers vary and you may not be eligible for an offer. Apply to know if you’re approved and find out your exact welcome offer amount – all with no credit score impact. If you’re approved and choose to accept the Card, your score may be impacted.
- Earn 4X Membership Rewards® points per dollar spent on purchases at restaurants worldwide, on up to $50,000 in purchases per calendar year, then 1X points for the rest of the year.
- Earn 4X Membership Rewards® points per dollar spent at US supermarkets, on up to $25,000 in purchases per calendar year, then 1X points for the rest of the year.
- Earn 3X Membership Rewards® points per dollar spent on flights booked directly with airlines or on AmexTravel.com.
- Earn 2X Membership Rewards® points per dollar spent on prepaid hotels and other eligible purchases booked on AmexTravel.com.
- Earn 1X Membership Rewards® point per dollar spent on all other eligible purchases.
- $120 Uber Cash on Gold: Add your Gold Card to your Uber account and get $10 in Uber Cash each month to use on orders and rides in the U.S. when you select an American Express Card for your transaction. That’s up to $120 Uber Cash annually. Plus, after using your Uber Cash, use your Card to earn 4X Membership Rewards® points for Uber Eats purchases made with restaurants or U.S. supermarkets. Point caps and terms apply.
- $84 Dunkin' Credit: With the $84 Dunkin' Credit, you can earn up to $7 in monthly statement credits after you enroll and pay with the American Express® Gold Card at U.S. Dunkin' locations. Enrollment is required to receive this benefit.
- $100 Resy Credit: Get up to $100 in statement credits each calendar year after you pay with the American Express® Gold Card to dine at U.S. Resy restaurants or make other eligible Resy purchases. That's up to $50 in statement credits semi-annually. Enrollment required.
- $120 Dining Credit: Satisfy your cravings, sweet or savory, with the $120 Dining Credit. Earn up to $10 in statement credits monthly when you pay with the American Express® Gold Card at Grubhub, The Cheesecake Factory, Goldbelly, Wine.com, and Five Guys. Enrollment required.
- Explore over 1,000 upscale hotels worldwide with The Hotel Collection and receive a $100 credit towards eligible charges* with every booking of two nights or more through AmexTravel.com. *Eligible charges vary by property.
- No Foreign Transaction Fees.
- Annual Fee is $325.
- Terms Apply.