TAM Airlines

Gol shows some signs of financial improvement despite posting a 1Q2013 loss

Brazil’s second largest carrier Gol recorded mixed fortunes during 1Q2013 as its overall losses widened year-over-year but yields and unit revenues improved at what appears to be at the expense of load factor. After recording annual losses for the last two years Gol is hoping an aggressive capacity reduction in the Brazilian domestic market place and a significant reduction in its workforce will help the carrier slowly improve its fortunes.

But Gol faces challenges in achieving its turnaround as company management believes it is uncertain that Brazil will record 2.5% GDP growth in 2013 while inflation is rising. The carrier feels positive about its position heading into the slow season in South America, but the timing of a full recovery for the carrier seems far from uncertain.

Brazil outlook for growth dims as domestic market shrinks in 1Q2013, driven by cuts at Gol

Brazil’s domestic market is showing more signs of a slowdown after shrinking by 1% in the first quarter. Load factors are improving, an encouraging sign for profitability, but growth has taken a back seat, driven by the capacity cuts at Gol and TAM.

The country’s international market, meanwhile, is showing signs of over-capacity as load factors slipped in 1Q2013. The key Brazil-US market has particularly become over-saturated.

The Brazilian international market will likely post high single digit growth in 2013. The domestic market should also still grow, albeit modestly, for the full year. But Brazil’s once red hot aviation sector faces a challenging 2013. As Brazil is by far the largest market in the region, the slowdown will drive down overall Latin America growth figures.

LATAM’s 4Q2012 yields are damaged by aggressive competitive expansion in the US-Brazil market

Competitive pressure in long-haul markets between the US and Brazil was a major driver in the 10.3% year-over-year decrease in yields during 4Q2012 for the powerful newly minted LATAM Airlines Group, which is the combination of Brazil’s leading carrier TAM and South American group LAN. The performance in long-haul markets is likely disappointing for the group as its performance in Brazil’s cooling domestic market improved during the last three months of 2012.

In some ways the competitive pressure on long-haul markets from the US and Brazil will be short-lived as TAM and American Airlines are working to forge a codeshare partnership that will see the two historic rivals team up in the market now that LATAM has selected oneworld as its alliance of choice. Once all the regulatory approvals for the tie-up are in place, TAM will be able to benefit from onward connections in Miami and New York that it currently does not enjoy. Based on current schedules in Innovata (24-Mar-2013 to 30-Mar-2013) TAM and American presently account for 69% of the capacity between the US and Brazil.

Europe to Latin America: why European airlines are practising their samba, salsa, tango and rumba

TAM will soon defect from Star to join its sister carrier LAN in oneworld. TAP Portugal’s future alliance membership is surrounded by uncertainty until its likely renewed privatisation process is complete. These developments throw the spotlight on the strategic importance of routes from Europe to Latin America to European carriers, who dominate this market, in particular the Big Three, but TAP Portugal, Alitalia and Air Europa also have noticeable positions. The South Atlantic market is only around one fifth of the size of the North Atlantic market by RPKs. So why should Latin America matter to European airlines?

In addition to forecast passenger traffic growth rates that, while not spectacular, are still very respectable and superior to those in Europe and on the North Atlantic, Latin America is a fascinating strategic battleground for Europe’s carriers, both directly and through alliances.

It is a territory of changing alliances and emerging players and, for those that are successful, market share gains can provide significantly higher growth then the underlying market.

Pressure mounts on Star and SkyTeam to secure Brazilian members as TAM confirms switch to oneworld

LATAM Airlines Group announced on 07-Mar-2013 that its TAM, TAM Paraguay and LAN Colombia subsidiaries would join its sister carriers in oneworld, confirming moves which had been considered a foregone conclusion for 18 months. The Star Alliance now faces the risk of not having a member in Brazil, one of the world’s most important growth markets, after TAM shifts from Star to oneworld in 2Q2014. But the void will not last long as Brazil’s fourth largest carrier, Avianca Brazil, will almost certainly join its sister carriers in Star, potentially by the end of 2014.

Meanwhile, Brazil’s second largest carrier Gol continues to be wooed by SkyTeam. With TAM moving to oneworld and Avianca Brazil expected to join Star, the stakes mount for SkyTeam while the benefit of maintaining independence for Gol diminishes.

Chile emerges as Latin America’s fastest growing market despite domination from LAN

Chile has recorded 17% passenger growth for the second consecutive year, making it the fastest growing market in Latin America. The rapid growth in Chile is somewhat surprising as it is one of the more mature markets in Latin America and the market is dominated by one player, LAN, which can have a stifling impact on competition. But the small country of 17 million continues to support rapid increases in travel propensity, which is already the highest in Latin America, driven by a strong economy and Chile’s unusual geography.

After recording flat traffic figures for 2009, Chile’s aviation market has grown by 57% over the last three years to 15.2 million passengers, according to Chilean Civil Aeronautics Board data. Growth in 2011 and 2012 was an impressive 17% while 2010 ended with 11% growth despite the impact of a devastating earthquake which struck Santiago in Feb-2010.