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When Latin American governments turned off airline regulations and stepped up economic reforms in the early '90s, airline brands servicing the region turned up the competitive heat.

Suddenly, the friendly skies aren't so friendly any more.

Brazilian national airline Varig is refining its image and launching a staged marketing campaign to promote business-class service to the U.S. and other markets outside Brazil. In Mexico, AeroMexico and Mexicana have had advertising dogfights over timely arrivals and friendly service, and have even entered into partnerships with AeroPeru on flights to Lima.


In Colombia, routes to Miami and New York are being hotly contested between American Airlines, Continental Airlines and Colombian brands Avianca and Aces-which themselves are in a battle for market share.

And in Argentina, United and American airlines are battling local carrier Aerolineas Argentinas for market share on important U.S.-Argentina routes.

Amid the heavy competition, co-branding has become a way to boost awareness throughout the region.

Stateside, United Airlines is promoting "tag" flights-flights that connect with in-bound international traffic and target short-haul destinations within the region. American continues to step up its presence both in the U.S. and regionally. Venezuelan travelers are being wooed by two-for-one offers from both U.S. brands.

"The competition is getting stronger every day," said Carlos Eduardo Posada, Aces account manager with McCann-Erickson Bogota.


These moves underscore airline executives' bullishness about changing politics and economics in the region. First came democratization, then economic stability and industry privatization, followed by deregulation and finally trade alliances like Mercosur (a pact between Brazil, Argentina, Paraguay, Uruguay and Chile), NAFTA and the Andean Pact.

Air travel in Latin America "is totally tied to the economy," said Bob Booth, publisher of Miami-based industry newsletter Aviation-Latin American & Caribbean. "If the GNP grows at 5%, airline traffic grows 10%.

The competition between U.S.-flagged and Latin American airline brands has grown since 1990. During that time, U.S. carriers' share of the market to and from South America has grown from 43.1% to 51.7%; in Central America, including Mexico, the figure has gone from 52.4% to 60.5%, according to Aviation Management Services, Miami.

In 1993, revenue passenger miles between the U.S. and Latin America increased 21%. The U.S. Federal Aviation Administration's forecast for 1994-2000 has it growing at an annual rate of 8.3%-twice that of the U.S. and 50% more than trans-Pacific or trans-Atlantic travel.

Argentina, Mexico, Brazil, Chile and Bolivia are the strongest markets in the region.

Driving much of the Latin American growth is business travel, a $1 billion-plus annual market. For that niche, deregulation has forced a thorough review of service offerings and marketing, said Antonio Fadiga, president of Young & Rubicam Brasil, São Paulo. "It's a way to push you to bring more benefits to the customer."


Y&R's sister image consultancy Landor Associates, Miami, for example, is working with Varig to modernize the company's image, especially in the domestic business market. And Y&R is implementing an ad campaign to promote the company to Brazilian consumers.

International branding is of growing significance to companies like Varig. Hence, "any potential American government regulation for business could kill any Brazilian airline," said Mr. Fadiga.

Sensing a competitive advantage emerging from deregulation, United Airlines ran a TV spot regionally and in local markets in May and again this month to bolster brand awareness. The ad, "Camilla," positions United against locals as a U.S. brand that's strong on service in the era of deregulation, said Jonathan Sumner, regional manager, advertising and promotions/Latin America.

It's a message that's well received in the market, especially as United adds regional tag flights, which reinforce non-stop routes and increase presence in a given country, he said. This spring, the airline added Santiago-Lima to its service between Belo Horizonte and São Paulo.

"That's the heart of our brand-building strategy in Latin America," he said. Leo Burnett, Santiago, handles, with input from throughout the region.

American also has tacked on some tag routes, including São Paulo to Monte Video and Asuncion. While American may gain some business, it has grown the market and created an opportunity for national carriers to handle cities not served by the U.S. airlines, said Pat San Pedro, American Airlines manager of corporate communications for Latin America/Caribbean.

"It's the whole `open skies' issue," said Ms. San Pedro, whose company works with DDB Needham Dallas for brand marketing in the region. "People are afraid the national carriers will die. Instead, national carriers have improved service. And because we don't fly on to other cities, the national carriers take it from there."

Deregulation is not necessarily a good thing for all involved. In fact, it could backfire on local brands, analysts say. The more lucrative tag routes that had primarily been the cheap fare turf of local carriers are now being serviced by non-domestic brands, and that could lead to outsider dominance on those routes, said Ed Lindquist, a technical consultant with Avmark, an Arlington, Va., consultancy.

"Deregulation is going to put South American countries at a real disadvantage when it comes to developing their own aviation and aerospace segments of the industry," he said. "And it creates somewhat of a stigma where the well established, formidable American companies come in and reap the cream of the harvest."

Domestically, industry battles remain. In Mexico, Mexicana and AeroMexico have been promoting themes such as "commitment" and "friendliness" in their consumer advertising efforts. Regional competition also is heating up between the two, as Mexicana recently added routes to Brazil and Chile. Young & Rubicam, Mexico City, handles AeroMexico; Alazraki y Asociados, Mexico City, handles Mexicana.

The Avianca-Aces competition in Colombia has the two brands in a price war that has seen fares drop and notoriously poor service and on-time ratings improve. This is happening amid an exploding market that has seen total domestic passenger traffic rise 43% (from 5.6 million in 1991 to 8 million in 1995) and international traffic almost double, from 1.3 million to 2.4 million over the same period.

While all major European carriers have service to and from Argentina, the most heated competition is on flights to and from the U.S. For the past two years, United and American Airlines have been using frequent-flier promotions and co-branding to battle for market share.

American Airline's local agency is Rainuzzo DDB, Buenos Aires, but most of its creative comes from the U.S. United's creative comes from Leo Burnett, Buenos Aires, mainly for its ads promoting its business and Connoisseur classes. The company currently is running a locally created outdoor and newspaper campaign titled "Destinations," which highlights flights to Miami, New York and Asia.

Across the region, co-branding, partnerships and alliances are flying high as a way to build loyalty. Aces and Avianca have paired with hotels to offer packages for the tourist trade. Avianca, the second-largest brand, partnered with third-place SAM to solidify its position. In Venezuela, market leader Viasa has promotions running with Visa and Mastercard.

In Chile, co-branding strategies between airlines and banks, telecommunications and other service companies are the rage. The Bank of Santiago and LanChile have paired, and the Bank of Chile has teamed with Ladeco. Citibank is working with American Airlines in the region.

Major international airlines servicing Chile also are using partnership agreements to face growing competition. American Airlines and British Airways, for example, have teamed to convince Iberia, which owns 25% of Ladeco, to sell out to them later this year. Lufthansa and United Airlines, KLM and Northwest, Delta Air and Swiss Air also are pairing up.

Upstart National Airlines is pushing for modifications that would allow it to fly into Miami, while teaming with Aerolineas Argentinas to offer special services, including a frequent flier club.

Contributing: Jo Bedingfield, Mexico City; Michael J. Galetto, Buenos Aires; Patti Lane, Bogotá; Lake Sagaris, Santiago; and Sophie Hares, Caracas.

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