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Brazilian aviation: scramble for Avianca Brazil’s slot allotments

Slot allocation at airports worldwide is often a complex process, but the divvying up of Avianca Brazil’s slots in the wake of the airline’s demise has been particularly labyrinthine. An auction of the carrier’s assets was initially called off and then held, with LATAM Airlines Group and GOL emerging as the winners. 

But now it seems Brazil’s government has deemed that auction invalid. That could possibly benefit Brazil’s third largest airline, Azul, which refused to participate in the auction process. Azul has also tapped social media to make its case for slots at São Paulo Congonhas, a strategic airport for all airlines in Brazil

But the outcome of the drawn-out process remains anyone’s guess as Brazil’s domestic market becomes more concentrated after Avianca Brazil’s exit. 

Summary

  • Avianca Brazil’s asset allocation process (including airport slots) has been mired in confusion and controversy. 
  • Brazil’s regulators have decided that an auction of Avianca Brazil’s assets, in which LATAM Airlines Brazil and GOL received key airport slots, is not valid. Now ANAC is working to allocate the slots.
  • It remains to be seen how the process will unfold, but this could give Azul hope of gaining additional slots at São Paulo Congonhas airport. 

The race for Avianca Brazil's assets has had many twists and turns 

Avianca Brazil sought creditor protection near the end of 2018 and subsequently its fleet dwindled as some of the airline’s aircraft were repossessed and others were returned to lessors. In May-2019 Brazilian regulator suspended the airline’s operations. 

The carrier was the fourth largest domestic airline in Brazil behind its competitors GOL, LATAM Airlines Brazil and Azul, and its market share before it sought creditor protection was between 13% and 15%. 

See related report: Brazil Aviation: Avianca Brazil’s decline; assets up for grabs 

The wind-down of Avianca Brazil’s assets – mainly coveted airport slots – has been anything but predictable.

Earlier in 2019 Azul forged a non-binding agreement to acquire significant assets of Avianca Brazil, paying USD105 million for 30 Airbus 320 jets and 70 airport slots that included slots at São Paulo CongonhasCongonhas is a key market for business travellers taking the air shuttle to Rio de Janeiro Santos Dumont airport. 

Azul’s service from Congonhas includes Porto Alegre, Curitiba, and Belo Horizonte. Its share of departing frequencies is just a fraction of those of LATAM Airlines Brazil and GOL. As of late Jul-2019, Azul had a total of 87 frequencies from Congonhas.

São Paulo Congonhas Airport percentage of weekly departing frequencies by airline: as of mid-Jul-2019 

After Azul declared its intentions, Avianca Brazil’s largest creditor, the hedge fund Elliot Management, struck a deal with LATAM and GOL for each company to offer USD70 million for Avianca Brazil’s assets at an auction originally scheduled for early May-2019. Avianca Brazil was divided up into seven segments to be auctioned off. 

After a legal challenge from Swissport Brazil, a court temporarily suspended the auction. Swissport claimed that the transfer of slots was prohibited.

Azul then submitted a new bid for of USD145 million for slots pairs, including the slot pairs for shuttle service from Congonhas to Rio Santos Dumont. 

Before submitting its latest bid for Avianca Brazil’s slots, Azul’s management declared that “Congonhas would have been an incredible cherry on top of the cake for us to show our product to the market”. 

Brazil's government appears to have taken over Avianca Brazil's slot allocation 

In Jul-2019 an auction of Avianca Brazil’s seven units occurred, but Azul refused to participate, “because it did not believe in the legitimacy of the procedure”, according to The Rio Times.

Both GOL and LATAM Airlines Brazil secured slots at São Paulo Guarulhos, São Paulo Congonhas and Rio Santos Dumont. 

After the auction, Azul launched a campaign highlighting the duopoly on the air bridge between Santos Dumont and Congonhas, noting that 95% of slots at Congonhas are held by LATAM and GOL.

Data from CAPA and OAG comparing seat shares on the air bridge from mid-Jul-2018 to mid-Jul-2019 show that in 2018 Avianca Brazil’s seat share between Santos Dumont and Congonhas was 18.1%, compared with GOL’s 38.6% seat share and LATAM’s share of 43.3%. In 2019 GOL’s share was 51.8% and LATAM’s share was 48.2%. 

Brazil’s aviation regulator ANAC has reportedly deemed the auction of Avianca Brazil’s asset as invalid and has resumed the process of distributing Avianca Brazil’s slots. 

How that process will work is somewhat up in the air. ANAC has held consultations with aviation stakeholders regarding the allocation, but the outcome is far from predictable. But ANAC’s assumption of responsibility for the slot allocation should provide Azul some hope that it can gain additional slots at Congonhas.

Brazil's domestic market remains stable after Avianca Brazil's exit 

As ANAC works to allot Avianca Brazil’s slots at Congonhas and other airports, domestic capacity growth in the country’s domestic market for the 5 months ending May-2019 was just 0.3%, with traffic growth of 2.1%.

Domestic passengers grew 2.6% year-on-year, to 37.7 million, and GOL, LATAM Airlines Brazil and Azul all grew their respective passenger shares, with Azul’s share jumping 12.9% year-on-year to 25.7%.

GOL remained the market leader, with a 34.4% share of domestic passengers – an increase of 3.9% year-on-year. LATAM Airlines Brazil’s market share increased 1.5%, to 31%. 

Avianca Brazil’s share fell from 12.9% to 8.3% and in ensuing reports released by ANAC, Brazil’s three largest airlines should report even greater gains in passenger share now that Brazil’s fourth largest airline has officially ceased operations. 

Brazil's domestic market is becoming more concentrated among three airlines 

The latest statistics from Brazil’s government show that from Jan-2019 to May-2019 GOL, LATAM Airlines Brazil and Azul had a combined domestic passenger share of 91%. 

Avianca Brazil was still operating limited services during part of that period, and now that the airline has completely ceased operations, Brazil’s domestic passenger share will become even more concentrated among the country’s three largest airlines. 

Azul is attempting to inject competition into one of Brazil’s busiest and lucrative domestic routes, but for now its ambitions remain in the hands of the country’s regulators. 

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