Brazil's Brazilian Association of Airlines (ABEAR) revealed (18-Jun-2013) all five member carriers - Avianca Brazil, Azul, Gol, TAM Airlines and TRIP Linhas Aereas - experienced improvements in operational indicators in May-2013, with overall ASKs up 1.5% year-on-year and RPKs up 3.9% year-on-year in May-2013. ABEAR president Eduardo Sanovicz said, "Within the expected pattern of seasonality of the market, the total supply was still lower than in Mar-2013, but demand has proved superior to that month, indicting that the market continues to grow." Mr Sanovicz added that going forward, "...we are still nearing the end of [1H2013] quite concerned because the data may still not reflect the increase in the dollar against the real." ABEAR reported:
Brazilian carriers all experience imrpovements in operational indicators in May-2013: ABEAR
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After two years of weak demand and pricing, some signs of stabilisation are emerging in Brazil; however the country’s two largest airlines are adopting an understandably cautious tone in their assessment of the operating environment. Although both LATAM Airlines Brazil and Gol have significantly reduced their domestic capacity during the last year and a half, both airlines have concluded that some excess supply remains in the market place. Fast-growing Azul has opted to slow its capacity growth in 2016, but Brazil’s fourth largest airline Avianca Brazil has continued growth in order to build its market share within the country.
LATAM Airlines Brazil also believes its performance on routes between the US and Brazil is improving, which is a similar conclusion drawn by US airlines operating between the two countries. For LATAM, the improved performance is offsetting some weakness on other long haul routes from its Spanish-speaking countries.
Neither airline has offered specific capacity guidance for 2017, but LATAM Airlines Brazil and Gol are likely to keep their supply restraint intact. Pricing in the domestic market has yet to stabilise, and competitive capacity actions will result in those airlines keeping their own ASK increases at bay in order to sustain a favourable supply/demand balance.
Brazil's Azul relies on an arsenal of resources to counter weak domestic demand
Brazil’s third largest domestic airline Azul has been forced to curb its once rapid growth as the country’s economy will endure its second consecutive year of contraction during 2016. Similarly to all Brazilian airlines, Azul has been plagued by soft domestic demand and a sharp currency decline that creates challenges for expenses denominated in the USD – such as fuel and aircraft costs.
Although it will take some time for Brazil’s economy to recover fully from its current recession, some encouraging trends are beginning to take effect. Recently the BRL has gained some ground against the USD, which is a welcome sign for Brazilian airlines.
Azul has used many tools to adapt to Brazil’s current economic slump, including a new relationship with the European airline TAP and equity infusions from foreign investors. It has also show a willingness to lower fares in some markets, particularly to the US, to ensure that it retains a strong market presence once Brazil embarks on a steady path to economic recovery.