he Argentine economy may be stuck in a seemingly endless stagnation but you wouldn't know that from the growth in air traffic that is adding sharp increases in capacity to one of South America's largest and most troubled economies. A new aviation treaty with the United States will add two new players and some 14 weekly connections with North America this year, and some creative new routings from major players such as American Airlines and Varig Brazilian Airlines suggest that carriers are not waiting for Argentina to pull itself into recovery.

The new U.S. agreement will bring daily Delta Air Lines flights from Atlanta into the country, which were slated to begin April 2, according to Christopher Didier, the regional manager for the airline. Delta has pledged to invest $150 million to develop the route, including MD-11 air-craft and ground facilities at Buenos Aires. Similarly, daily Continental flights from Newark International Airport are scheduled to begin by December, under the new deal.

Although Argentina's economy is "clearly in a recession now," said Chris Mangos, managing director of cargo sales for American Airlines in By Charles Miami, the airline has rerouted aircraft from Chile and other points to the United States to boost volume. "We were up to 2.5 million pounds in January from 2.2 million pounds in the prior year month," he said. "We don't foresee any impact from the new competition or the weak economy on our volumes."

Belly Boasts

If there is volume to be found in Argentina, there will certainly be the planes to carry it, at least if it fits in the bellies of passenger jets. Right now, American and United Airlines fly 17 daily routes into Buenos Aires and that could grow substantially under a new treaty. United is interested in adding a daily Los Angeles-Buenos Aires route and Continental is eyeing a daily flight between the Argentine capital and Houston. Argentina's LAPA Airlines already serves Atlanta-Buenos Aires, and Aerolineas Argentina flies 17 times a week to Los Angeles, Miami and New York. At the same time, Varig is sharply stepping up its flights out of Rio de Janeiro and five other Brazilian cities into Buenos Aires and even to other cities in Argentina's interior.

The passenger airlines look to be stepping in where Aerolineas Argentina is faltering.

The Argentinian carrier saw an 8 percent drop in freight traffic in 1999, when freight tonne kilometers slipped to 232,808. But that's only a small part of larger problems that have dogged Aerolineas Argentina through the better part of a decade of financial turmoil and troubled at-tempts by foreign airline investors to turn the carrier around. Spain's Sociedad Estatal de Participaciones Industriales, or SEPI, which took over majority control of the airline in February 2000, announced plans to inject up to $650 million into the air-line over a three-year period. But SEPI is reportedly not satisfied with the airline's inability to cut its estimated monthly losses of $20 million.

Cattle Call

That has left a greater opening for outside airlines to rush in, but the interest of the combination airlines doesn't appear to carry over into the all-cargo arena. Volumes in Argentine air cargo are depressed, according to Dave Sowers, the vice president for sales at UPS' Challenge Air Cargo unit in Miami. "We serve Argentina as an extension of our Brazil service; most of our cargo is between Brazil and Argentina, not between the United States and Argentina."

Although it has one of Latin America's largest economies, Argentina has been an under-performer on the air cargo side. In its most recent freight forecast, the International Air Freight Association forecast Argentina to be the worst-performing country in the world in terms of average annual growth in cargo traffic, with just a 0.7 percent growth rate between 1999 and 2003.

Argentina's trade is heavily tied to Brazil, but IATA forecasts the air trade between the countries will actually fall over the next couple of years. Argentine exports aren't being helped by problems in one of its leading agricultural commodities, meat exports. The U.S. Department of Agriculture recently imposed the second temporary ban in the past year on imports of Argentine beef after evidence of foot-and-mouth disease was found among the country's cattle. That's a sharp blow as Argentina has hoped to step up its beef exports, particularly to Europe, where consumers are looking for relief from the twin plagues of mad cow disease and foot-and- mouth disease.

Whether it is leather goods or, eventually, fresh beef, Delta expects to be shipping cattle in one form or another as it moves into Buenos Aires, said Abby Ortiz, the airline's regional manager for Latin American cargo.

But that alone might not sustain the carrier's Latin American cargo growth, which experienced a 38 per-cent increase in volume last year. Ortiz said perishables figure to be a big part of any new business, as Delta may bring Chilean salmon through Buenos Aires to the United States.

Heavy Chile

anChile is taking steps to build on what is proving to be a rapidly-growing cargo business at the Chilean airline.

Now firmly established as the No. 2 South American air freight carrier behind Varig Brazilian Airways, LanChile says its cargo revenue grew 25 percent in 2000, to $593.5 million, and even held up relatively well during the bleak fourth quarter.

"Cargo is now 40 percent of our business at LanChile and so it is clearly very important to us," Enrique Cuerto, chief executive of the airline, told a recent forecast conference of the Federal Aviation Administration in Washington.

While North American carriers struggled in the fourth quarter be-cause of a slowing U.S. economy, LanChile saw a 9.1 percent increase in cargo traffic, which it attributes to strengthening economies in Chile and Brazil and new European routes.

Yield was also up as the increased traffic helped the airline's cargo unit count $164.7 million in revenue for the last three months of the year, 12.3 percent better than the last quarter of 1999.

Some of the growth came through the addition of two 767-300 freighters last year and LanChile appears to be stepping up its bid to make itself a regional heavyweight. The airline is using a combination of route rights to fly a freighter between Houston and Manaus, Brazil, and Cuerto wants other South American countries to take down restrictions on air service to allow for more such routings.

... Briefly

Honduras got a new carrier with the startup of regional airlines LAN Honduras. ... British logistics consultant Tibbett & Britten moved into South America by buying Argentine distributor Unicargo. ... Martinair Holland started serving Montevideo, Uruguay with an MD-11 flying weekly from Amsterdam through Miami. ... Mercury Air Group's Hermes Aviation subsidiary will sell cargo capacity for China Airlines in Mexico and Central America.

© 2001 Journal of Commerce, Inc. All rights reserved.