DALLAS — Affordably connecting our world, low-cost carriers and ultra-low-cost carriers dot the 21st-century commercial aviation landscape.
The Americas are no exception. Spirit Airlines, Viva Aerobus, and JetSMART are just a few of the big names affordably flying passengers from city to city. Arajet founder and CEO Víctor Pacheco, in an exclusive Oct. 27 interview with Airways, said his airline is taking a different approach.
Beyond merely connecting individual cities, Pacheco wants to leverage Arajet’s growing Boeing 737 MAX 8 fleet to affordably fly passengers between North America and South America via a simple, strategic Santo Domingo stopover.
Already flying to cities as far-flung as Toronto and São Paulo, Arajet has hit the ground running since its 2022 launch. A decade in the making, Pacheco tells Airways there’s much more in store for his Dominican airline.
Brent Foster: Tell me about Arajet’s origin story. Why did you start this airline?
Víctor Pacheco: “About nine years ago today, there wasn’t any affordable travel. We had average fares that could go from between $800 and $1200 or even more depending on the season. Less than 10% of Dominicans were traveling from a country of 11 million people and a diaspora of two million. It was something that I got obsessed with working to solve.
I come from a family where my grandfather was an entrepreneur for financial services with the Dominican diaspora that went to the U.S. He was responsible for a good number of them because he was the first IATA travel agent that we had in the country many, many years ago.
During the depression in the Dominican Republic, many Dominicans traveled with him. After that, he was the one who first represented American Express in the country, Thomas Cook, and eventually, he got to represent Western Union. He operated a lot of different financial services, and I worked with him for a while.
So, thinking about our people and our customers, that’s what prompted me to understand and approach travel. Travel was so expensive for our customers. I had no airline background 10 years ago, but solving that problem brought me into aviation. Eventually, after being in aviation, I immediately started learning about different models.
Due to the geographical position that we have and how successful low-cost airlines have been around the region, I had a hunch that a connecting low-cost airline was needed in the Dominican Republic. However, after many investors, even my family, said no to investing in my idea, I found out that I wasn’t just going to get money and try an idea out because I had to do a lot of work and a lot of homework. That’s why it took a decade to get the airline up and running.”
What advantages does a Santo Domingo hub offer for Arajet? Does it position the airline to connect passengers traveling between North America and South America?
“Definitely, what I had in my intuition ended up in my business plan. After all the research, we had a business plan that produced an investor deck and a financial model, creating a hub in the Dominican Republic. The power of the hub, because of the Dominican Republic’s geographical position, allows us a great advantage.
When you look at north-south connecting points, compared to other hubs on the eastern sides of these two continents, we are the most efficient connecting airline. If you add the geographical advantage, which means an average of about 20% less flying, that’s 20% less fuel. You start developing a good advantage with respect to cost. Having high-density seating because of the model gives you a good advantage because, in my region, you don’t have to connect ultra-low-cost carriers.
At the same time, we believe that you’re not going to thrive unless you have very good service. That’s why we identify as a low-fare airline.
Due to the geographical position that we have and how successful low-cost airlines have been around the region, I had a hunch that a connecting low-cost airline was needed in the Dominican Republic.Víctor Pacheco
As opposed to many other traditional ultra-low-cost carriers that really don’t care about the passengers, we do and we deeply do. We want to humanize the brand and the airline and then combine them with discipline in the way that we manage the business and the way that we have high utilization. That’s what we are doing at Arajet.
To give you some quick data, that almost gives us an ex-fuel cost per available seat kilometer (CASK) of about four cents, and we’re barely one year old, so it feels like we’re going in the right direction. Also, our customer satisfaction is at about 86%, which is not normal for a startup. You have these very two important indicators, which say, ‘Yes, you are a disciplined airline’ and ‘Yes, customers love you.’ So, we’re going on the right track.”
Do you think Arajet, as a low-cost airline, is well-positioned to democratize air travel across the Caribbean and Latin America?
“Definitely! Before we entered the markets we’re currently flying to, the average fare was US$400 each way. We entered with an average fare of US$175. Our competitors have had to go to US$275; we have stayed at US$175. We call that the ‘Arajet Effect,’ or you can call it democratizing travel, which I also mentioned before.
This has been good for many countries in Latin America, and I think this is another reason why Arajet is a small airline, but they feel it’s a champion airline because its objective was to bring low fares and stimulate the markets while allowing connectivity. We will be connecting, by Nov. 15, 150 different connections in our 22 markets.”
Arajet recently started flying to Canada. How do you see Arajet boosting tourism in the Dominican Republic?
“Definitely! I would say that we see three verticals. We envisioned them when we made our plan. Now, after operating for a year, I can tell you that’s actually what we’re seeing with our numbers. The first passengers that we stimulate are the diaspora, whether it be a Dominican or a diaspora in the country that we’re flying to. In our ranking of routes, visiting friends and relatives (VFR) was the first vertical that we touched.
Secondly, we look after leisure travelers. That’s why we have a bus service to Punta Cana. So, if you go onto our website, you can book directly to Punta Cana with no additional costs, and basically, we take care of you ourselves. After leisure, we also, of course, look for connecting passengers so they can have a more efficient journey through the hub of Santo Domingo.
Before we entered the markets we’re currently flying to, the average fare was $400 each way. We entered with an average fare of $175.Víctor Pacheco
Depending on the market, there are some variances, but right now I can tell you that it’s probably somewhere around 35% VFR, probably around another 35% leisure, and 30% connecting traffic. As we grow, we are seeing a change in the forecast. We are foreseeing that the connecting element will grow. So, your VFR will drop in the future to about 25%, and your connecting traffic will grow to about 55%. Leisure is probably in the middle there.”
When do you foresee Arajet entering the American market?
“Well, we applied on the 1st of March to the U.S. Department of Transportation (DOT). Our application is still pending. So, I really don’t know, and I cannot really say until we get an answer on our application. I hope that it happens soon because a lot of our passengers want to be able to travel to the U.S. with Arajet.”
How will Arajet effectively compete and expand in the United States?
“One of the good things about our plan is that we started in South America, Central America, and the Caribbean on purpose. We’ve established a brand there first because when we go and compete in the U.S., we’ll face stronger airlines in the sense that they have more aircraft and cash as established carriers.
So, our connecting points will help us—we won’t be competing point-to-point with the U.S. majors. This takes some competitive stress outside of the situation.”
Arajet flew an impressive 360,000 passengers in its first 12 months of operations. Where do you see these numbers going?
“We’re looking to close the calendar year of 2023 with close to half a million, and we’re forecasting close to 1.5 million for 2024.”
Getting into the fleet, why did Arajet choose the Boeing 737 MAX 8?
“We wanted to work with whichever manufacturer we made an order with. So, we negotiated with both Airbus and Boeing. Boeing ended up winning. In the end, it is a great aircraft. We are very happy with its performance, fuel efficiency, and 40% less noise pollution from the engines, and our customers are happy. I am a proud MAX operator, and so are our customers.”
“We started in South America, Central America, and the Caribbean first on purpose.Víctor Pacheco
Given the extensive range of the Boeing 737 MAX 8, does Arajet plan on penetrating deeper into North America and South America?
“Yes, we start in Chile on the 29th. Chile is our furthest route south. It will be the fourth-longest route on the MAX in the world when we start it. Then, on November 15, we’ll start service to Buenos Aires. In the U.S., we’re interested in operating at 17 different points all over the country.”
What is the connecting experience like for passengers transiting through Santo Domingo?
“Connecting times average around two hours. So, that’s not a long connection time. What we’ve heard is that although you can tell that there are infrastructure challenges, meaning there’s a lot of people that are there, passengers felt that the connection has been more efficient than other connections they’ve done before because you don’t have to do security again or immigration or get your bag and take it to the plane.
People have reported that they have been happy with the transfers.”
How will Arajet manage operating costs so passengers can continue enjoying lower fares?
“Well, I think that it has to do a lot with discipline. You have to maintain discipline. You have to make sure that the team can operate with high efficiency and work together well because you have to become a high-performing team for years to maintain your CASK level to where you can have probably the best CASK in the region.
This is what we’re aiming to do.
All of us are sensitive to macro, political, or other types of situations that can affect us all. That stresses all of our fares. If there’s a fuel spike or a war, all of these things will bring all of our fares up simultaneously. So, you want to be in a position where you’re the one who produces the best cost, so people will still travel, and you’re always considered an option.”
What is your vision for Arajet in the next five years?
“We will be operating more than 30 aircraft, mobilizing close to seven million passengers per year. We will have about 57 destinations. Hopefully, by then, we will have employed close to 4,000 people, impacted over 40,000 indirect jobs, and contributed to the GDP of many countries, including the Dominican Republic.”
Featured image: Arajet CEO Víctor Pacheco stands aside from the airline’s fleet. Photo: Arajet