Southern Winds Soars

Juan Maggio's start-up carrier rattles a lackluster industry.

ARGENTINA'S SKIES ARE ANYTHING BUT FRIENDLY THESE DAYS. Aerolineas Argentinas, the nation's flag carrier now run again by Spain's Iberia, is US$900 million in debt and pondering whether to slash salaries and operations to stave off bankruptcy. LAPA airlines' finances are headed in the right direction, but a crash last year that killed 67 people has shaken the No. 2 Argentine airline. An economic recession and cutthroat competition have squeezed passenger fares, while taxes and fuel prices have risen by more than 20%. Smaller operators like Andesmar and Alta have quietly folded.

Tucked into the prevailing gloom is the little carrier that could: Southern Winds.

After a decade at LAPA, Juan Maggio spread his own wings with the start-up carrier. In 1996, with just $500,000 in capital, Maggio persuaded Canada's Bombardier Corp. to rent him an $18 million plane. After overcoming "all kinds of aggression" from rival companies, Southern Winds acquired nearly a dozen more commuter planes from Bombardier and grabbed 17% of Argentina's domestic airline passengers by flying a fleet of commuter planes--six 50-seater jets and six 37-seater de Haviland Dash-8 turbo props.

The company now carries nearly a million passengers a year to some 15 cities, and it beats all competitors in the number of daily flights: 120. With 750 employees and ticket offices in most major cities in Argentina, sales reached $60 million in 1999. "This company has been built by the effort of its people," says 36-year-old Maggio, noting that he didn't even have enough money to cover salaries at first. "Although it helped a lot that the plane was full from the start."

Short commute. While other Argentine airlines rumble through turbulent skies, Southern Winds has enjoyed a smooth flight, largely because of its fleet of economical small planes. Smaller planes allow more flights for the same per-passenger cost. They also can cover destinations not economically viable for larger planes.

"One of our principal assets is to have bought the [50-seat commuter] plane just when it first came out, says Maggio, who has an option to purchase a newly designed Bombardier commuter plane by the end of the year.

Another key to success was Southern Winds decision to use Cordoba, Argentina's second-largest city, as its hub. The city's central location in the geographically expansive country means shorter journeys and lower costs for flights among destinations other than Buenos Aires. Maggio claims his company pilots 95% of all provincial flights that don't originate or end in the capital.

Air power. The strategy has not gone unnoticed. Aerolineas last year made a grab for the Cordoba market by lowering fares. Southern Winds responded with a second hub-in Buenos Aires. "We grew up in the middle of that [price] war," Maggio says. "We are prepared for low fares. But domestic passenger prices today are often below costs, especially for the other companies."

The market share battle reached its climax when Southern Winds obtained a court order obliging its competitor to increase its rock bottom price of $19 for a one-way ticket between Buenos Aires and Cordoba, a distance of 420 miles.

Tempers have since cooled. Aerolineas, apparently deciding 'if you can't beat them, join them,' signed a code-sharing arrangement with Southern Winds. "Our relationship with Aerolineas is very good now Our companies are complimentary rather than competitors," says Maggio.

Even though Southern Winds planes enjoy an occupancy rate of more than 70%, compared with an industry average of around 60%, Maggio has Southern Winds breaking even. Putting growth over profits, the fledgling airline is continually reinvesting, he says.

Bobby Booth, an independent Miami-based airline consultant, sees a bright future for the airline, describing it as ideally positioned to cash in on a rising demand for flights to smaller cities in Argentina, Brazil, Uruguay and Paraguay. "Every study we have done shows the real future for Latin American airlines is in the Mercosur [trade bloc]," says Booth.

Southern Winds already flies to Tacna in southern Peru and the Brazilian resort town of Porto Seguro and is authorized to serve smaller cities in Brazil, Chile and Uruguay. Maggio says he would love to add a hub outside Argentina. "We have all the infrastructure necessary for international expansion," he says.

The carrier may be extending its range locally, but its real goal is global. To that end, Maggio is considering buying larger jets--and, eventually, flying to the United States and Europe. Argentina recently signed an open-skies agreement with the United States that will deregulate traffic between the two nations by 2003.

"It's one of the reasons we gave the company a foreign name," says Maggio. "I would like Southern Winds to use the same regional jet strategy to expand to other parts of Latin America and the world."

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