Brazil Airlines Covet Europe With Tam Hub, Bids for Bankrupt TAP

Latam Airlines Group SA, the biggest airline in Latin America, is planning to create an international hub in northeastern Brazil as it seeks to tap demand for flights to Europe and compete with a Portuguese rival.

Creating a hub in Natal, Fortaleza or Recife would give fliers, easier and more direct access across the Atlantic, rather than convening in the southerly city of Sao Paulo. It would also mean faster turnaround times, which would cut costs in half, said Claudia Sender, chief executive officer of Latam’s Brazil unit, Tam.

A new regional seat will pit Santiago-based Latam against Lisbon-based TAP SGPS SA, which has more routes between Brazil and Europe than any other airline and flies to the three cities Latam is considering. Tap is being sold by the Portuguese government and has received offers from Avianca Brasil owner Synergy Group, run by the Efromovich family, and Azul SA, the Brazilian carrier created by JetBlue Airways founder David Neeleman.

“We think the potential demand in the northeast is far beyond what we see today,” Sender said in an interview at Bloomberg’s Sao Paulo office. “With a hub in the Northeast, we can better use our assets and capital, and offer more destinations to our passengers.”

Sender estimates that an additional 1.5 million passengers will board Latam’s new routes, which will include 10 European destinations. Today, Tam flies to London, Paris, Frankfurt, Milan, Madrid and, soon, Barcelona. The location of the hub will be chosen by the end of the year and flights should begin by December 2016, Sender said.

Pilot Fatigue

One caveat is a new law under consideration in Brazil regulating pilot fatigue, which could increase operating costs by 1 billion reais ($329 million) annually because it would require adding staff, Sender said at a press conference last month. Such a change would make it impossible for Latam to compete with foreign airlines and it would cancel the plans for the hub, she said.

“Our crews would be flying less and that would make the hub not viable,” Sender said in the interview. In Brazil, most crews fly 60 to 70 hours a month, with a legal maximum of 80 hours. That compares with 120 hours in the Middle East, she said.

Tam would consider ordering regional jets, including Embraer SA planes, if plans for the hub go through.

“Then we can see what our fleet needs are,” Sender said.