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Avianca and GOL to create holding company Abra Group Limited
Kind: ICD What's New  Organization: Department of International Cooperation  Publish Date: 2022-05-27 10:59
According to the 2021 statistics conducted by the International Air Transport Association (IATA), the global airline industry suffered greatly from the prolonged Covid-19 pandemic, compared to the 2003 outbreak of SARS. Currently, the airline industry has received financial relief amounting to US$243 billion, by means of wage subsidies, loans, etc. Many of these enterprises have even filed for bankruptcy protection, as loss of profit became unbearable, Colombia's Avianca is among one.

According to media reports, the announcement on May 2 of Avianca's strategic alliance with local low-cost airline, Viva, shook the country's airline industry. With its plan to create Abra Group Limited, a holding company structure with Brazilian airline, GOL, if approved, will place their market share in 1st at 52.2% in the Colombian airline industry. Avianca and Viva will maintain their original brands, distinguishing features, work teams, corporate cultures, and independent operation from Abra, while generating profits in service and investment under their own capital. The newly found Abra Group will act as a platform, to cut cost and achieve scale economy by keeping up-to-date flying crews, expanding its routes, service, products, and customer loyalty programmes, etc. Once the merger is complete, Abra will control Avianca, GOL, and Viva's operations in Colombia and Peru.

Revenue Passenger Kilometer (RPK) is used by airline companies as a unit in estimating airline traffic. It shows that under specific markets, the result of multiplying the number of paid customers by carriers' flying distance. According to Statista on the 2020 RPK estimation, Avianca yielded about 10.6 billion RPK, while GOL covered around 20.1 billion. In addition, based on an online statistics regarding LATEM airline revenue in 2020, Avianca generated US$1.715 billion in revenue, whereas GOL contributed US$1.226 billion, totaling Abra's profits at US$2.941 billion, just shy of LATEM's US$4.334 billion.

In summary, as Covid-19 decimated airline services in Latin America, in order to outlive the pandemic, rather than receiving financial relief, the founding of a holding company is a more practical and proactive approach in stabling long term operation and financial condition.

Sources: The Taipei Commercial Office in Bogota, Colombia; Portafolio news report; The International Air Transport Association (IATA) website; Statista website
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Update: 2020-04-23
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