Brazil

Delta’s investment in Gol has SkyTeam and broader US-LatAm strategic implications

SkyTeam’s goal of recruiting Gol as a new member took one gigantic step forward this week with Delta Air Line’s acquisition of a minority stake in the Brazilian carrier. The deal also further separates Delta from its US peers as the airline continues to aggressively pursue a strategy of investing in carriers from Latin America and potentially other overseas markets. Other US major carriers have not yet duplicated this strategy but should be enticed to follow Delta’s lead given the opportunities which exist outside the mature US market.

Delta’s eagerness to invest outside North America first surfaced in late 2009, when it made an ultimately unsuccessful bid to acquire a stake in Japan Airlines while the oneworld carrier was restructuring under bankruptcy protection. Nearly two years later, in Aug-2011, Delta made a lower profile but equally significant move in agreeing to acquire a minority stake in fellow SkyTeam member Aeromexico. The USD65 million deal with Aeromexico will give Delta about a 4% share in its Mexican partner as well as a seat on Aeromexico’s board.

TAM plans US expansion in 2012 with B777-300ERs while Brazil domestic growth slows

Brazil’s TAM is planning further capacity expansion on US routes in 2012 as growth in the Brazilian domestic market shows signs of cooling down. The US expansion will be driven by the doubling of TAM’s B777-300ER fleet next year from four to eight aircraft. The B777-300ER, which is by far the largest aircraft type in TAM’s fleet, is now only used on European routes but will start to be deployed in the US during 2012.

Gol outlook brightens as Brazilian yields start to show signs of improvement

Despite a slower growth for Brazil’s economy, Gol is bullish on its outlook for 2012 as domestic yields, which dropped significantly earlier this year, are beginning to recover. Gol also expects to benefit in 2012 from a new cost reduction initiative, its recent acquisition of smaller low-cost carrier Webjet and its expanded partnership programme with other carriers. After incurring losses in 2Q2011 and 3Q2011, Gol will likely be back in the black in 4Q2011 and remain profitable throughout 2012.

Oct-2011 figures show Gol’s domestic yields are again tracking higher than 2010 levels. Gol executives told analysts last month during the carriers’ 3Q2011 conference call that yield improvements are expected to continue through 4Q2011 and into 2012 because the Brazilian airline industry overall have become more rational with fares and more disciplined with capacity.

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.

Azul plans more rapid expansion, expects to capture 15% share of Brazilian market by end of 2012

Azul is planning more rapid expansion in 2012 despite the expected slowdown in the growth curve of the overall Brazilian market. The low-cost carrier, which so far this year has launched 14 new destinations while adding 17 aircraft, sees plenty of opportunities to further stimulate demand on secondary domestic routes where there is relatively limited service.

Azul is now Brazil’s third largest domestic carrier after Gol and TAM. Azul accounted for 8.4% of domestic RPKs through the first three quarters of 2011, according to data from Brazilian civil aviation authority ANAC. In 3Q2011, Azul’s share of the Brazilian market exceeded 9% for the first time.

Azul chairman David Neeleman told CAPA along the sidelines of the ALTA Airline Leader Forum in Brazil earlier this month that he expects the carrier will capture 15% of the market by the end of 2012.

Latin America, a bright spot for aviation, with continued growth and robust aircraft requirements

IATA, Boeing and Airbus have again noted the potential of the Latin American market, with IATA describing the region as a “bright spot in the aviation world” and Airbus commenting that Latin America’s aviation sector “has never been stronger”, following a boom in the sector over the past five years. Boeing has similarly noted the large potential in the Latin America market in its market forecast.

Latin America is “the only region generating aggregate profits for three consecutive years," IATA CEO and director general Tony Tyler noted at ALTA this month. On the outlook for the region, he commented: “Taking a long-term view of Latin American aviation, one can only be optimistic. The economic potential of this vast and varied geography can only be realised with a successful aviation industry”.