Governments in Latin America that view air travel as a luxury and airlines as an easy tax target have resulted in a proliferation of fees and taxes on aviation in the region, hampering growth.

IATA regional VP the Americas Peter Cerda pointed to the example of Chile, which levies a $1 per passenger fee that goes toward the government’s aid projects in Africa and other developing regions. Each $1 in ticket fees can result in as much as $20 million less in tourist revenue by depressing travel to the region. By contrast, Cartagena, Colombia reduced its airport fees from $92 to $38, and this was resulted in 26% more international passengers and 38% more tourists, Cerda said, citing IATA research.

“Air transport is not an industry of the rich and it shouldn’t be seen as a target for luxury tax,” Cerda told journalists during briefings in Geneva Dec. 5. “The economic value that robust and sustainable connectivity creates far outweighs the short-term benefits that can be obtained through taxation.”

Governments in Latin America also do not plan for the long term when it comes to aviation infrastructure. Quickly completed infrastructure projects are prioritized over airports, which can take years to plan and build, Cerda said. Few Latin American governments have cohesive aviation policies. But Cerda noted that Panama has built a world-class airline in Copa and what he called “the best hub” in Latin America with Tocumen.

Brazil earlier this year passed legislation that allows airlines to charge for checked bags, but lawmakers are pushing to get the law repealed. The public expected airfares to drop after bag fees were introduced, and this has yet to happen, resulting in sharp criticism of the new policy. Cerda noted that over time, airfares will fall, as they have in Europe and the US, where bag fees have been in effect for years. Brazil also charges airlines a fuel surcharge that costs the industry $600 million per year over the cost of fuel, Cerda said. “Brazil, an oil-producing country, charges airlines as if it imports oil.”

The most troubled country in the region, Venezuela, has lost much of its connectivity. The government has refused to let airlines repatriate $3.8 billion in revenue earned in the country. Political instability and economic travails have stifled demand. The country in 2014 was served by 24 IATA member airlines in 2014, but only six remain now. International traffic has fallen by 65% since 2013. IATA is shuttering its Caracas office in January and moving its Venezuela operations to Panama, Cerda said.

But all is not gloomy in Latin America, Cerda said. Most economies in the region—led by the largest, Brazil—are recovering after years of recession. This year, airlines contributed $167 billion to the region’s economy in aggregate this year. Latin American carriers reported $700 million in profits this year, and are expected to report $900 million next year, Cerda said. LCCs are expanding and providing more connectivity. Demand for air travel is rising and is set to double by 2034.

Still, the region’s airlines make $3 per passenger in the region, compared with $16 per passenger in North America.

Madhu Unnikrishnan/Aviation Daily