The Federal Aviation Administration (FAA) has predicted that Latin America will be the fastest growing region for commercial air transport over the next two decades, with a growth rate of 4.5 per cent per year. In parallel, the International Air Transport Association (IATA) has indicated that it expects the combined profits of Latin American airlines to more than double this year – approaching US$1 billion, up from US$400 million in 2013.

Given the size of the region, demand for commercial air transport is unsurprising, but what is fuelling this rapid rate of growth, and what will it mean for the shape as well as the size of the industry in the medium term?

Brazil now boasts the world’s seventh largest economy and fourth largest domestic aviation market. Significant economic growth and a strong and stable currency have seen enormous inward investment and a continually expanding business sector and middle class with both need and appetite for air travel. Current predictions suggest that passenger numbers will continue to increase to over 120 million by 2017, representing growth of close to 50 per cent over five years, with a corresponding demand for aircraft as fleets are both renewed and expanded.

Looking beyond Brazil and into the longer term, aircraft manufacturers expect the region’s airlines to require nearly 3,000 new aircraft over the next 20 years, at a cost approaching US$350 billion.

The past few years have seen a period of airline consolidation, with a number of large and high profile mergers such as Chile’s LAN and Brazil’s TAM to create pan-Latin American airline LATAM, and the merger of Colombia’s Avianca with El Salvador’s TACA. In parallel, low cost carriers have been seizing the opportunities offered by this growth market, setting their sights initially on Brazil and then Mexico, with Colombia hot on their heels. VivaAerobus, a joint venture between Irelandia and Mexico’s largest bus operator IAMSA, hit the headlines last year with its order for 52 Airbus A320 aircraft. In addition, VivaAerobus’s new entrant into the Colombian market, VivaColombia, is already seeing consistent growth and profits since it launched in 2012, supported by its proximity to Bogotá’s El Dorado International Airport - this handles the highest volume of cargo in Latin America and is the third busiest airport in the region in terms of passenger numbers, providing a ready-made market for new low-cost services.

Infrastructure, however, presents potential obstacles to growth. The last few years have seen a number of new and impressive airports open across the region, such as those in Bogota and Quito, and Brazil’s upgrade project continues in readiness for the Olympics. But a question mark remains about whether the scale of these developments is sufficient to support the accelerated demand expected in the medium term - the World Economic Forum still rank most Latin American countries well below the top 50 for air transport infrastructure.

The development of secondary airports to serve the growth in air travel within Latin America, whilst not without its challenges, is a growing trend. VivaColombia is operating into the newer Panama Pacifico Airport in place of Tocumen International Airport in Panama and is also looking at West Palm Beach Airport in Florida as a potential destination in the USA. Avianca, for its part, has been operating out of Fort Lauderdale in Florida for a number of years. The development of infrastructure in secondary or unused airports presents a number of opportunities for the Latin America aviation sector, particularly in countries such as Colombia and Peru in which existing Public-Private Partnership laws ease the way for private sector projects. Alfonso Bonilla Aragón International Airport (Cali Airport) in Colombia is due to undergo significant enhancements and the Palestina Airport project, located near Manizales and intended to serve the Colombian Coffee Triangle, may move forward sooner than expected.

Ironically perhaps, given the natural resources boasted by the region, fuel has also been a challenge, with average costs materially higher than those in Europe and the U.S. One would expect increased production levels and the liberalisation of the oil industry in Mexico to help with that. Conversely, the booming offshore oil and gas industry has resulted in an explosion of demand for helicopters and business jets.

Regulatory and political issues remain a hot topic too, especially for international airlines. In Venezuela, the restrictions imposed by currency exchange control laws and administrative processes have adversely affected remittance of foreign currency to foreign airlines’ home countries from revenues generated by ticket sales in local currency. This has led international airlines to reduce frequency and routes into Venezuela, to service Venezuela with older or smaller aircraft, to charge for tickets in foreign currency and, in some cases, to exit the market on a temporary or indefinite basis.

What about the ones to watch? Alongside Colombia, Chile and Peru experienced the highest domestic air travel growth last year, and the World Bank has tipped Panama and Peru for the strongest regional economic growth in the short term. No coincidence then that Gol and Sky Airline both launched São Paulo/Santiago services this year, with VivaColombia now operating to Lima and Panama City and Quito to follow shortly.