Rio Routes Too Busy as Azul Picks Small Towns: Corporate Brazil
Azul Linhas Aereas Brasileiras SA is “leaning towards” using slots it gains at Sao Paulo’s main domestic airport to strengthen its hold on smaller cities the other airlines don’t fly to, Neeleman said in an interview. By doing so, the airline will be eschewing the more-popular Sao Paulo-to-Rio de Janeiro circuit dominated by rivals Tam SA and Gol Linhas Aereas Inteligentes SA. (GOL)
The startup carrier has been locked out of offering weekday flights to and from Sao Paulo’s Congonhas airport until now. The government will award new takeoff and landing times as soon as tomorrow, and Neeleman estimates Azul will get 14 to 16 slots a day, making it the biggest winner. With more than 280 daily flights -- most of them operated by Gol and Tam -- the 45-minute trip between Sao Paulo and Rio de Janeiro is already the world’s most-served route.
“Do you want to go into a gunfight with a peashooter? And if you only have 12 or 14 departures, 16 departures, whatever, it just doesn’t give you enough,” Neeleman, 54, said in an interview at the airline’s headquarters in Barueri, Brazil. “And I think it’s going to become more saturated.”
Currently, Azul only has one time slot per week at Congonhas on Saturday afternoon, which it uses to fly to Rio de Janeiro. It would need to have enough frequency on the route to threaten Tam and Gol’s dominance, said Savanthi Syth, an analyst at Raymond James Financial Inc. in St. Petersburg, Florida. She has a market perform recommendation on Gol’s American depositary receipts.
“There’s going to be a little more overlap here in the domestic market,” Syth said in a telephone interview.
Airline regulator Anac is changing the way Congonhas slots are alloted by basing the process on a company’s market share, as well as cancellations and delays. That means Azul and Avianca Holdings SA (AVH)’s local unit will gain slots once the plan is fully implemented, Aviation Minister Wellington Moreira Franco said in an interview in Brasilia this month.
Anac is set to announce as soon as tomorrow the new slots that will be divvied up between Azul and Avianca. In a second phase scheduled for March, existing slots will be redistributed based on domestic, including regional, market share.
Tam, Gol Lose
“Both Tam and Gol will likely lose slots, though Tam will lose the most,” Franco said. Tam SA is controlled by Santiago-based Latam Airlines Group SA. (LFL)
Tam said in an e-mailed response to questions that it “fully complies with all the rules necessary to maintain its concessions and maintenance of slots in Congonhas.”
Gol’s press office in an e-mail said it’s in a quiet period ahead of its earnings release and declined to comment. Gol shares fell for a third day, losing 3.4 percent to 13.35 reais at 1:45 p.m. in Sao Paulo trading.
Avianca Brasil Chief Executive Officer Jose Efromovich said in a July 10 press conference that basing slots on market share will hinder competition, not help it, because it ensures the biggest players can continue to offer the most flights. Avianca has 9.1 percent of the market.
“Why does Azul get the right to receive twice as many slots as we do?” Efromovich said in a telephone interview from Sao Paulo on July 29. He estimates that the government will add 10 to 40 slots at Congonhas to be divided between Azul and Avianca. “We consider this completely unfair.”
Avianca has 12 total slots at Congonhas on weekdays now, compared with more than 200 each for Gol and Tam, he said.
Six-year-old Azul has boosted its market share as measured by revenue per kilometer to 18 percent by positioning itself as Brazil’s dominant small-town carrier. It’s the only carrier or dominant airline in about three-quarters of the locations it serves, including Tabatinga, an isolated town in the Amazon jungle.
The Congonhas slots can help it strengthen its hold in mid-sized markets like Cuiaba and Curitiba ahead of a separate regional airport plan that Aviation Minister Franco said could double the number of air travelers in Brazil to 200 million by 2020.
Franco told Bloomberg News this month the government will likely offer 1 billion reais ($445 billion) in subsidies to entice airlines to expand their network of regional flights.
“We’re in the best position simply because we have the right aircraft type, we know how to operate them,” Neeleman said. “We know how to operate in small cities.”
Once details of the regional aviation plan are announced, Neeleman said Azul can start flying to six to eight new cities in the first year.
While Neeleman said he expects rival airlines would need guarantees that the subsidies will be offered on a long-term basis to prompt them to bulk up their regional offerings, he said Azul can withstand the competition.
“We’ve even told them we have some planes to sell them,” he said. Azul has planes “that don’t have TVs on them. We’ll say: ‘Take these. We’ll get new ones from Embraer’.”
To contact the editors responsible for this story: Ed Dufner at email@example.com Molly Schuetz, Jessica Brice