The FDI angle:
- Low-cost air carrier Arajet is on target to move more than 500,000 passengers in its first full year of operation, with an expectation to reach 1.5 million in 2024.
- CEO Victor Pacheco wants to turn the Dominican Republic into a hub for the Americas.
- Why does it matter? Successful airport hubs are magnets for investment in anything from infrastructure to real estate and services. Arajet’s vision can put capital Santo Domingo on the aviation map and add new FDI impetus beyond tourism for the whole country.
Victor Pacheco is a busy man. One minute he talks about his recent trip to Santiago de Chile; the next he shares expectations about an upcoming visit to Buenos Aires, Argentina.
The 41-year old entrepreneur, the scion of a family that built a financial empire in the Dominican Republic, splits his time between his base in Santo Domingo and the new destinations that Arajet, the low-cost airline he launched in September 2022, is adding to its portfolio. At each stop, there is the usual whirlwind of meeting the media, business meetings and some local exploring.
“The region needed Arajet,” Mr Pacheco says, arguing that the airline has stimulated new demand, as well as brought down average ticket prices.
And yet Arajet joined a crowded market, with similar low-cost airlines already serving the Americas with mixed fortunes. What makes it unique is Mr Pacheco’s vision for Santo Domingo to become an aviation hub connecting the continent north to south.
Should he pull it off, Arajet could be transformative for the Dominican Republic and its capital city, whose airport has languished in the shadow of its peer in tourist-heavy Punta Cana. But access to the US market is still pending and competition will only get more intensive as Arajet delivers on its plan to move seven million passengers on 40 planes by 2028.
“They say starting an airline is the most difficult thing; in fact, that may well be taking it to the next level,” says Richard Maslen, head of analysis at the Centre for Aviation, a firm providing market intelligence for the aviation and travel industry.
The launch of Arajet has been a long process. “I wanted to address the issue of costly fares. It’s expensive for a Dominican to travel to the diaspora. Addressing that issue became my passion,” recalls Mr Pacheco.
He soon learned that he would need more than passion to get things done. After operating a charter airline called Dominican Wings for a couple of years in the 2010s, he dedicated himself to raising capital for a fully-fledged low-cost airline based in Santo Domingo. Eventually, investment firm Bain Capital and commercial aircraft leasing and alternative asset management business Griffin Global Asset Management funded the company, and Arajet’s first flight took off on September 15, 2022.
Today, the company operates a fleet of five leased Boeing narrow-bodies, with an order for another 20 expected to be delivered by 2024. Each one is named after a natural park in the Dominican Republic. They connect 22 destinations in 15 countries across the Americas from Canada to Chile.
The carrier is on target to move more than 500,000 passengers in its first full year of operation, with an expectation to reach 1.5 million in 2024 and grow to seven million by 2028.
Hub in the Caribbean
A new airline flying passengers in and out of the Dominican Republic would be a hard sell, argues Mr Maslen. The likes of low-cost carrier JetBlue already have a strong grip on the market, making it hard for any newcomer to be successful.
But front and centre of Arajet’s vision is the development of the Santo Domingo airport as a hub able to link connections across the Americas, from Canada to Argentina. Its very name — ara is the Spanish name for the macaw — suggests the idea of something that flies all over the continent, the macaw being common across the Americas, Mr Pacheco notes.
Copa Airlines has pulled it off in Panama but Arajet wants to do it in Santo Domingo, at a lower price point.
This vision has already translated into more activity at the Las Americas international airport in Santo Domingo operated by Aerodom, the local concessionaire owned by French group Vinci. In 2022, Arajet accounted for 13 of the 23 new flight routes the airport added to its portfolio, according to Aerodom figures. In just over a year of operation, the firm has established itself as the third largest air carrier at the Las Americas airport by number of inbound flights after JetBlue and SkyHigh, figures from the ministry of tourism show.
“Hotels too have felt a benefit from Arajet in terms of occupancy,” Mr Pacheco says, arguing that the airline has contributed to the strong recovery the country’s tourism sector has experienced in the wake of the pandemic, with total arrivals exceeding pre-Covid 19 levels already in 2022.
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US access still pending
There is one piece that has yet to fall into place to make Arajet’s vision a reality.
“The key thing now is gaining access to the US market. That would be a massive boost,” Mr Maslen says. “There is a tremendous demand originating in the US. Access to the US market will support the Santo Domingo hub, bringing not only origin and destination passengers, but also transit traffic.”
According to the Pew Research Center, an estimated 2.4 million people of Dominican Republic origin lived in the US in 2021, mostly in New York (39%), New Jersey (15%), Florida (12%), Massachusetts (8%) and Pennsylvania (8%). Visitors from the US typically make up about 50% of total inbound passengers and flights, according to figures from the tourism ministry.
Arajet filed a request to operate in the US market in March 2023 and a final permit has been pending since then. “We are ready to fly to the US as soon as we get approval,” Mr Pacheco says. Should approval be granted, Arajet plans to start with three destinations — Miami, New York and Puerto Rico — and eventually expand these to a total of 17 destinations across the country.
On top of gaining access to the US market, Mr Pacheco believes there is room for Dominican authorities to improve the legislative and regulatory environment in which Arajet operates.
“Arajet already has had an impact on the domestic GDP, but we need the conditions to compete with other hubs like the one in Panama,” he says.
The Dominican Republic Congress is now discussing a bill that would introduce several incentives, including major reductions of withholding taxes, for local airlines.
It will take discipline and commitment for Arajet to stick to its low-cost model, fend off competition and succeed in becoming a major player across Latin America and Caribbean skies. Aviation is a volatile industry and many uncertainties loom ahead. What is certain, however, is that for Mr Pacheco it will not go quiet any time soon.
This article first appeared in the October/November 2023 print edition of fDi Intelligence