The big three U.S. airlines, United, Delta, and American, have been focusing on short-haul leisure markets in Latin America as part of their growth strategy. However, in the first half of 2024, this strategy has shown signs of weakness. Revenue per available seat mile and yield in Latin America have declined significantly for both United and Delta, between 10% and 13%.
The current quarter is expected to show another double-digit decline in Delta’s Latin America unit revenue, mainly due to pressure in short-haul markets. Despite these challenges, both Delta and United executives remain optimistic about the long-term outlook for the region. American, which has the largest presence in Latin America, is also expected to feel the impact of market saturation when it reports earnings.
In response to declining yields and fares in Cancun, the big three carriers have launched services to the newly opened Tulum International Airport as an alternative destination. Tulum offers a less crowded and more exclusive experience compared to Cancun, which has become a highly developed resort. This initiative has come at a time when the average fare to Cancun has fallen by about 11% between January 2023 and January 2024.
Data from Cirium shows significant capacity increases in Caribbean resort destinations, with U.S. carriers adding around 18% or a million seats between the first quarter of 2023 and the first quarter of 2024. Delta has led growth in both the Caribbean and South America, aiming to challenge American’s dominance in the region. In South America, Delta increased capacity by 32%, while American and United also saw growth, but at a slower rate due to their existing strong presence.
Bank of America analyst Andrew Didora noted in a report that American Airlines may face challenges in revenue growth compared to Delta and United due to weakness in Latin America routes. Latin America has been identified as a headwind for American, with multiple factors contributing to the risk, including high domestic capacity growth, a smaller premium seat inventory, and outsized exposure to the Latin American market, particularly in the short-haul segment. Despite these challenges, the big three carriers are committed to expanding their presence in Latin America while navigating the current market dynamics.
