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  HOME | Brazil (Click here for more)

Avianca Brasil’s Bankruptcy Creates Challenges for Airline Industry

SAO PAULO – Avianca Brasil’s bankruptcy declaration last December has created challenges for Brazil’s airline industry, which has some of the highest air traffic levels in the world, leaving just three main carriers, reducing competition and causing airfares to rise.

Avianca Brasil, previously known as OceanAir and a company that is independent from Avianca Holdings S.A., filed for bankruptcy protection after piling up debts totaling more than 1 billion reais ($260 million) and being hit with lawsuits by several creditors.

The company plans to sell some of its assets at auction on Wednesday.

“With the exit of a competitor, in this case Avianca, airfares rise and the three main remaining airlines can impose whatever rules they want,” Fundacion Getulio Vargas economic research center professor Ulysses dos Reis told EFE.

During the first five months of 2019, according to National Civil Aviation Agency (ANAC) figures, Gol, Latam and Azul airlines handled more than 90 percent of departures on domestic flights, while Avianca handled 8 percent and other carriers handled less than 2 percent.

At the same time, airfares rose, on average, 14 percent in the wake of Avianca’s decision to cancel thousands of flights starting in April, according to a survey conducted by online travel agencies.

The increase in the cost of airfares “is just the tip of the iceberg” because the lack of airline competition hurts the free market and has “a snowball effect across the entire economy of the country,” affecting everything from the movement of qualified workers and products to remote markets to investment in infrastructure, Reis said.

Avianca Brasil’s exit from the market comes at a time when the Sao Paulo-Rio de Janeiro route, the fourth-busiest airline route in the world, is celebrating its 60th anniversary amid a high degree of market concentration, with only Gol and Latam currently able to operate flights on the popular itinerary.

Brazil is a country with “continental dimensions” that has an “urgent need to integrate, to have knowledge flow from the poles to the periphery. The lack of options for mobility strangles development,” Reis said.

Although the government has given foreign companies, such as Air Europa, authorization to enter the domestic market, “things will not change much without more investment and the break-up of the monopolies,” the researcher said.

ANAC air services regulation superintendent Ricardo Bisinotto Catanant told EFE that the “abrupt exit” of Avianca Brasil from the market has caused a sudden drop in the supply of airline seats, affecting the prices and services offered by carriers.

Catanant, however, said that the free-market economic policies implemented by President Jair Bolsonaro’s administration could “incentivize” and “promote” the entry of new companies into Brazil, “expanding competition” and balancing the market.

“(Spain-based) Air Europa was the first (foreign airline) to ask to enter the country and there are other groups interested. This makes for greater competition and we desire both competition and the entry of other companies,” the ANAC official said.

The increase in airfares, however, has forced many Brazilians to shift to other modes of transportation, such as land-based transport.

Brazilian Land Passenger Transportation Business Association (ABRATI) representative Leticia Sampaio Kitagawa told EFE that the number of travelers switching from airlines to land-based transportation providers rose 12 percent between January and June, with passenger counts soaring up to 16 percent on some routes.

Airplanes, however, keep beating buses. In 2018, commercial airlines carried 93.6 million passengers on domestic routes, while buses transported 50 million.

 

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