- Passenger traffic (RPKs):
- Load factor:
Brazil's domestic pax traffic up 5.3% in Apr-2012, int'l pax traffic down 1.5%
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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.
Latin American airlines work to attract investors. Ownership laws a hindrance in tough economics
Economic and political upheaval in Brazil during the past couple of years has essentially isolated many of the country’s companies, including airlines, from credit markets. Some of the country’s legislators made a bold move earlier in 2016 to lift all foreign ownership restrictions on airlines; but that specific element of legislation was vetoed by the country’s interim government in order ensure other pieces of a larger bill were ratified.
The push for 100% foreign ownership still appears to have some momentum in Brazil’s uncertain political climate. The country’s transportation minister has reportedly stated that the debate over foreign ownership is not over, and he aims to push for re-opening the discussion about ownership caps in the country’s Senate.
In the meantime, Brazil’s 20% foreign ownership cap remains at status quo in a fast-changing Latin American aviation landscape where Avianca is courting foreign investors and Qatar has just tabled its plans to take a 10% share in LATAM. It would be an unprecedented move for Brazil to allow for 100% foreign ownership of its airlines but raising the cap to 49% seems reasonable, and could possibly help Brazil’s largest airline Gol as it works to restructure billions in debt. But changes in ownership laws may not result in investors flocking to Gol when other Latin American airlines offer less risk to investors.