Arajet, a low-cost Dominican airline, currently operates at a loss due to the increase in fuel costs, which account for around 40% of ticket prices. The conflict in the Middle East has driven oil prices up by over 70%, a blow that severely affects the regional air sector.
Arajet’s CEO, Víctor Pacheco, described the situation as “very complicated”. According to his statements, it is not viable to pass on the entire increase to fares, as a 10% price hike could reduce passenger demand by up to 25%. This limits the company’s options and puts pressure on its business model centered on accessible routes from Santo Domingo and Punta Cana.
Operational costs and strategic decisions of Arajet
Despite losses, Arajet maintains its operations to conserve customer trust and its position in the Dominican market, which handles a key share of local air traffic. Fuel costs directly impact all routes, depending on distance, complicating profitability in destinations like Venezuela, where the airline is advancing in negotiations with the Government for new flight permits following the recent lifting of bilateral restrictions.
Dialogue with the Government and review of expansion
Arajet has initiated conversations with the Dominican Government to mitigate the effect of the oil price hike. These negotiations seek support measures that preserve air connectivity in the country. Historically, the low-cost sector like Arajet, launched in 2022, has driven tourism with competitive fares, but the current context obliges to slow down growth plans and investment.
Context of the Dominican air sector
- Oil already accounted for over 40% of operational costs before the conflict, according to sector experts.
- Arajet operates from key airports like Punta Cana, boosting passenger movement.
- Air demand elasticity is high: price increases rapidly reduce occupancy.
Experts agree that the global scenario, with tensions in the Middle East, conditions the evolution of airlines like Arajet. The company, a pioneer in expansion across the Americas, now prioritizes sustainability. In the Dominican Republic, where tourism depends on affordable flights, this challenge could reverberate in the economy. Arajet remains alert, adjusting strategies to navigate these losses without compromising its essential role.
