AVIANCA

Continued erosion in Brazil’s domestic demand triggers stringent capacity discipline for Gol and TAM

Brazil’s two largest carriers Gol and TAM have further refined their already-reduced capacity guidance for 2012 as traffic growth in the country’s domestic sector continues at a much slower pace than during the last couple of years. The continued discipline is part of a broader effort that began in mid-2011 by the carriers to improve their yield performance. But the rebuilding process is progressing more slowly than each carrier would have liked as TAM has concluded customers in the Brazilian domestic market place are becoming more price adverse as the country’s economy is slowing from historically high growth levels during the last several years. Brazilian carriers are also facing added pressure from government-imposed increases in navigation and landing fees.

During 1Q2012 demand (RPKs) in the Brazilian domestic market grew just 7.3% on capacity growth of 11.3%. The growth in 1Q2012 is much slower than the 15.3% growth recorded year-over-year in 1Q2011 and the 33% growth during 1Q2010.

Aeromexico continues to build partnerships outside SkyTeam

Aeromexico’s new codeshare agreement with Brazilian carrier TAM represents the second agreement Mexico’s largest carrier has signed with a non-SkyTeam carrier in the last two months. The partnerships reflect the need for both Star and SkyTeam carriers to access key markets in Latin and Central America that are not available through their respective alliance partners.

The Avianca-TACA relationship with Aeromexico, announced in Mar-2012, was surprising given that the Kriete family, which is a main shareholder in Avianca-TACA, is also a major holder in Aeromexico’s competitor Volaris. But Aeromexico has been pursuing a tie-up with Colombia’s largest carrier, Avianca, since it started Mexico City-Bogota flights in 2010. The chance was brushed aside once Avianca-TACA opted to join the Star Alliance, but now the agreement will include more connections than just Bogota as Avianca-TACA cited an ability to partner with Aeromexico on flights to Central and South America during the second half of this year.

Brazil’s Gol and TAM continue domestic capacity restraint in attempt to improve yields

Brazilian low-cost carrier Gol has revised its domestic capacity plan for 2012 to a zero growth scenario and is hinting its domestic ASKs this year could even fall after growing by 7.4% in 2011. The country’s largest carrier, TAM, also plans less than 2% domestic capacity growth for 2012 after expanding its domestic ASKs by 9.5% in 2011. Both carriers are exhibiting capacity discipline in the hopes of continuing a yield recovery that began during 2H2011. But at the same time other domestic Brazilian operators, including Azul, Avianca Brazil and TRIP, continue to rapidly expand.

Gol revised its capacity forecast as it posted last week a BRL710 million (USD389 million) loss for 2011 and a negative 2.5% pre-tax margin. The losses were largely due to a 23% hike in the carrier’s fuel costs, currency fluctuations and non-recurring expenses related to aircraft returns.

Gol and new Gol domestic subsidiary Webjet have begun the process of cutting 80 to 100 daily domestic flights. This represents about 8% of their current combined offering of 1100 daily flights. Gol agreed to purchase Webjet in Jul-2011 and while the acquisition has not yet been completed, 87 days of Webjet's operation were included in Gol's 2011 results.

Key decisions loom in 2012 for Avianca-TACA as integration effort nears completion

The spotlight in Latin America this year will primarily be shone on LAN and TAM as the two airline groups complete their landmark merger and begin the integration process. But it is also a key year for Avianca-TACA, which completed their merger in early 2010 and has completed about 90% of its integration process.

The integration of Avianca and TACA will be wrapped up this year as the carrier formally joins the Star Alliance, completing two major milestones for the fast-expanding airline group. Several major decisions also loom for the group in 2012 related to its corporate structure, branding and fleet.

Structurally, a decision will likely be made by the end of this year on whether to bring Avianca Brazil into the publicly traded holding company Avianca-TACA. The Brazilian carrier is still owned by the Synergy Group, the holding company controlled by the Efromovich family which also owned Avianca prior to its merger with TACA (the Efromovich family now has a majority share in Avianca-TACA Holding). As a result, Avianca Brazil remains separate although it has a co-branding arrangement with Colombia-based Avianca.

Avianca Brazil accelerates expansion as ex-LAN A318s and new A320s are added to fleet

Avianca Brazil is accelerating expansion as the carrier aims to regain market share in Brazil’s fast-growing domestic sector. Avianca Brazil, previously known as OceanAir, now plans to end 2011 with 26 aircraft, up from only 17 aircraft at the start of the year. At least another five aircraft will be added next year as Avianca Brazil has emerged as the unlikely new home for the 15 A318s exiting the fleet of rival Latin American airline group LAN.

Avianca Brazil president Jose Efromovich told CAPA at the sidelines of the ALTA Airline Leaders Forum earlier this month that the carrier has agreed to acquire all 15 of the A318s exiting LAN’s fleet. Mr Efromovich says five of the A318s have already been delivered to Avianca Brazil while five more will be delivered in 2012 and the final five aircraft will be come in 2013.

The 15 A318s are being remarketed by Airbus as LAN returns the aircraft in exchange for larger A320 family aircraft. Airbus was expected to have a very hard time finding new homes for the aircraft given the unpopularity of the A318 and the fact the LAN examples are powered by PW6000 engines – an engine type engine unique to LAN’s A318s.

Avianca-Sky tie-up and LAN-TAM alliance selection could lead to further consolidation in LatAm

The rivalry in Latin America between leading airline groups LATAM and Avianca-TACA has increased another notch following the establishment of a new alliance between Avianca-TACA and Chilean carrier Sky Airline. While relatively small, the tie-up forged this week between leading Colombian carrier Avianca and Sky could be a precursor to further consolidation in the region. Such consolidation will almost certainly follow alliance lines as LATAM, which will be formally established in late 1Q2012 once LAN and TAM complete their merger, is poised to opt for oneworld while Avianca-TACA is now in the process of joining Star Alliance.