Brazil’s Most Lucrative Airline Passengers Are Still Grounded

  • Domestic demand is finally growing again, but not in business
  • Politics needs to simmer down for corporate demand to return

Business travelers are sitting out Brazil’s timid airline revival.

Executives have been slow to take back to the skies, even as domestic demand growth finally resumed in March and April after 19 months of contraction. Business travelers are the most attractive since they tend to pay high, last-minute fares that generate the best profit from Latam Airlines Group SA to Gol Linhas Aereas Inteligentes SA.

When those business travelers might come back is a mystery. Economists are signaling an incipient recovery may take a while to gain steam after Brazil’s longest-ever depression. Recent and perpetual political scandals that destabilize the country aren’t helping, the economic growth outlook was cut and companies are trimming travel costs, by booking in advance and turning to videoconferencing.

“From an airline’s perspective, the politics is really important because we need corporate demand to come back and it’s not going to come back with all this political noise and uncertainty,’’ Savanthi Syth, an analyst at Raymond James Financial Inc., said in a phone interview.

Latam, Gol and Azul SA are among those whose passenger numbers have tumbled 29 percent since January 2015 and would benefit from corporate travelers getting back on board, Syth said.

“The corporate segment is very important and will only reactivate when the conditions for this segment are favorable,’’ said Ian Gillespie, a director at Oceanair Linhas Aereas Ltda., known as Avianca Brasil, and the chairman of Star Alliance steering committee in Brazil.

In a statement, Latam said it’s expecting corporate sales to rise in 2017, “but there’s no certainty. The number of tickets sold daily for this segment still varies greatly.”

To attract new passengers and boost revenue, Latam today announced new flexible fares and the sale of products aboard Brazil flights, following similar changes in Chile and Peru, Chief Executive Officer for Brazil Jerome Cadier told reporters in Sao Paulo. The carrier is aiming to increase overall demand by 50% by 2020.

While the downturn in Brazil business travel has wreaked havoc on the airline industry, at least one company is benefiting: Oi SA. The telecom giant has cut its own executive travel costs by half over the past four years, while also profiting from rising demand for its videoconferencing services.

The most recent political brouhaha that crashed markets on May 18 also interrupted the airline industry’s momentum internationally. The U.S. dollar strengthened 7.5 percent against the Brazilian real the day after corruption allegations against President Michel Temer came out. Airline executives believe the recovery may continue, though more slowly, as long as the exchange rate remains relatively stable.

There is hope that things are turning around but it is still not showing up in the numbers, Syth said. It has, however, stopped getting worse.

“We’ve noticed a drop in calls seeking reservations but we haven’t seen cancellations,’’ Air Canada commercial director for Brazil, Gleyson Ranieri, said. The airline saw a 26 percent increase in demand for its flights to the North American country since the beginning of the year, when compared with the same period in 2016.

That said, if the dollar strengthens further, the market will shrink considerably, he said.

“We haven’t seen a red light in the foreign-exchange rate yet,’’ said Emerson Sanglard, Copa Holdings SA Brazil manager. “It’s the moment of taking a careful look into the current scenario. There are too many options in the political scenario that can actually impact the economy.’’

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