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Brazil is the largest country, in terms of size and population, in South America. Brazil’s aviation sector is comprised of multiple local and international airlines. Brazil has approximately 2,500 airports (including landing strips). São Paulo-Guarulhos International Airport is the largest and busiest airport, with Congonhas and Campo de Marte serving as regional airports in São Paulo. TAM Airlines is the biggest Brazilian airline followed by GOL, Azul, TRIP and WebJet Linhas Aéreas which operate regionally with some international services.
The Brazilian agency ANAC (Agência Nacional de Aviação Civil) is responsible for the regulation and safety of civil aviation. Brazil is party to the Mercosur's Fortaleza accord, a South American multilateral airspace agreement.
Airports in Brazil
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Even as losses continued for Brazil’s second largest airline Gol during 3Q2013, there were some positive signs in the carrier’s results and its efforts to improve its financial leverage. Its work during the past year to beat back the effects of a weakening Brazilian economy and the resulting pressure that has had on demand were evidenced in improved passenger unit revenue and yields.
Gol also recorded positive margin improvement and made strides in its leverage ratios as its exposure to the Brazilian domestic market is more pronounced than its major rival TAM, who as part of the LATAM Airlines Group is leveraging the parent company’s ability to transfer some of TAM’s exposure to the falling BRL to the LATAM balance sheet.
Going forward it seems that Gol aims to focus on international expansion as a means to weather the tough market conditions within Brazil. While the carrier is not prepared to divulge the form that expansion will take, additional service to the US might be in the offing.
Latin America’s powerhouse LATAM Airlines Group believes it has turned a corner in its Brazilian operations after enduring weak margin conditions within Brazil’s domestic environment since the merger of LAN and TAM officially closed a little over a year ago.
The company’s overall 3Q2013 results were somewhat buoyed by a 19% improvement in Brazilian domestic unit revenues year-on-year as LATAM slashed its supply within Brazil by 6% during the quarter. For the 9M2013 time period LATAM’s ASKs within Brazil contracted by 9%.
While the rebound within Brazil in commendable LATAM still faces challenges with respect to the devaluing of the BRL, which fell 13% during 3Q2013 against the USD. LATAM is attempting to blunt the effects of currency fluctuations through hedging schemes and transitioning TAM’s debt to the LATAM balance sheet, which is denominated in the USD.
Star Alliance considers new platform for low-cost airlines, targeting Brazil's Azul & India's IndiGo
The Star Alliance is looking at following SkyTeam in offering a partnership platform for low-cost and hybrid carriers. Star sees the new platform, which would fall short of full membership but provide a model for selected LCCs to work with members, improving coverage in key markets.
Star has started to court Brazilian LCC Azul and Indian LCC IndiGo to join the potential programme, which would facilitate connections with participating Star members. Star has been trying to find a solution for India since 2011, when efforts to bring in Air India as a planned new member were suspended, while earlier this year Brazil’s largest carrier, TAM, began the process of transitioning from Star to oneworld.
But Star’s plan for a hybrid and LCC platform is controversial. Some Star members are against the concept of bringing in LCCs, fearing it could water down the alliance’s offering. Star’s pursuit of Azul is particularly controversial as at the same time the alliance has begun working at bringing in full-service carrier Avianca Brazil.
Investors have always kept an eye on events in Central and Southern America while operators like AENA, Flughafen Zurich, Copenhagen Airports and the late lamented TBI cut their teeth in what can be a challenging environment. After a series of successful and not so successful privatisations in and between Mexico and Argentina, some of which resulted in subsequent IPOs, the region dropped out of fashion with foreign firms for a while. But now, driven by events in Brazil, where the government is battling to have infrastructure in place for the forthcoming sporting events in 2014 and 2016, it is back in fashion. As a result it is attracting the attention of investors from across the world, including (and not for the first time) North America.
The first round of Brazilian privatisations (excepting a trial privatisation at São Gonçalo do Amarante airport in Natal province) was completed early in 2012 when the National Civil Aviation Agency (ANAC) moved swiftly to conclude the concession auction for three major airports, two in Sao Paulo and one in Brasilia. With the 2014 World Cup looming, less than two and half years away at the time, and the government having faced mounting criticism from many quarters as to its tardiness in resolving infrastructure issues, the swiftness was apposite.
Oneworld has increased its presence in Colombia, Latin America’s third largest market, with LAN Colombia formally joining as an affiliate member on 1-Oct-2013. LAN Colombia is the second largest domestic carrier in Colombia after Star Alliance member Avianca and has a small but growing international operation.
Colombia is an important growth market but the impact of adding a Brazilian member is much more significant. Oneworld has set a 31-Mar-2014 ascension date for Brazil’s largest carrier TAM, which is now part of the LATAM Airlines Group along with LAN Colombia and four other LAN-branded carriers that are already oneworld members.
With LAN Colombia and subsequently TAM, oneworld will become the largest alliance in Latin America with a projected 27% share of seat capacity. Star will still have a respectable 16% share, which could grow to about 18% based on probable new members, and will remain the dominant alliance in Colombia.
The outlook for airport privatisation and financing, Part 2: CAPA now tracking 475 airport investors
In Part 1 of this report into the global outlook for airport privatisation and financing, we reviewed the evidence of private placements, bonds and debt funding, as well as some of the leading airport privatisation activities in Europe. In this concluding part, we review activity in the rest of the world.
The report coincides with the release by CAPA of its new Global Airport Investors Database, which is now available as an interactive online database at the CAPA website. It currently lists over 475 active, recently inactive and potential investors in airports, infrastructure and estate, located in all corners of the globe and is part of the comprehensive new CAPA Airports Data Suite, available as a premium add-on to the CAPA Membership service.