Business travel prices will not fall, says Latam – 02/06/2024 – Market

The rescue package that the government is discussing with the airlines will not solve the structural problems that make travel in Brazil more expensive if the sector does not have a reduction in operating costs, such as fuel — a dilemma to be resolved with Petrobras.

The assessment is from Jerome Cadier, president of Latam. He also points to judicialization as another issue that weighs more heavily on the accounts of Brazilian companies than on the global average and could be combated without help from the Treasury.

For now, the effort to make tickets cheaper requires an increase in the supply of seats in the market, which is facing a shortage of planes. Hence Latam’s interest in Gol’s Boeings, which entered into judicial recovery in the USA and is currently negotiating with aircraft lessors.

“Gol has several planes parked. Who knows, we can get them to fly. What matters to the passenger is having a plane to fly. If it’s stopped, it doesn’t help to have an offer and lower the fare”, he says.

The idea, however, is to stimulate entry prices, such as Voa Brasil tickets, a R$200 ticket program for retirees and Prouni students. The segment purchased at the last minute by corporate travelers will remain higher.

“I’m not going to give a discount to a company owner who needs to fly to close a deal. He can pay more. And it helps me to offer a ticket for R$200 or R$300. Without him, this ticket doesn’t exist”, says Cadier .

How is the negotiation with the government for the airline rescue package? How long will it take? For several months we have been talking about three topics: fuel prices, excessive judicialization in Brazil and credit. With the entry of Gol into chapter 11 [recuperação judicial]the level of urgency, perhaps, from the government has increased.

I don’t know how quickly we will be able to move these issues forward. If it were simple, I think the government would have already made some moves. Our main problem is cost. We hear complaints about ticket prices, but even with high prices, the sector is not healthy. The topic is cost. If we don’t address this, we will continue to experience recurring crises.

The Minister of Ports and Airports, Silvio Costa Filho, Did you say that the airline relief fund could reach R$6 billion? How would this help the sector? It obviously helps, but it won’t solve the structural problems or operating costs. It’s a high cost that increases ticket prices. It is not simply having access to credit that will immediately lower the ticket price. What has a direct impact is lowering fuel and reducing judicialization.

What is the outlook for QAV (fuel kerosene)? aviation)? We have a dilemma. Petrobras is listed on the stock exchange and has to price in the best way for the company. If we conclude that fuel needs to decrease, there must be a clear justification, so that Petrobras does not find itself in a complex situation in relation to the market. The calculation formula is still unclear. At times, Petrobras charges above the import price, and at others, below.

Another thing: we say there is no monopoly. But isn’t there really? So why isn’t anyone buying from a company other than Petrobras? I don’t think we have a monopoly written into law, but we have difficulty bringing other companies to compete with Petrobras in supplying QAVs to Brazilian companies.

Data from Abearindustry association, show that the judicialization represents 1% of the sector’s cost. Is this really big or is it just the sector’s argument to ask for change? regulatory? It has a direct cost, in which the company is condemned in court and has to pay an average of R$5,000 in compensation. This year, Latam will spend more than R$350 million and transport just over 30 million passengers. In other words, every passenger is spending R$10 for nothing. If the average rate is R$600, it is more than 1%. And there is the indirect cost, because it reduces efficiency and increases the total cost of operation.

The last government had a BNDES program during the pandemic, but did not approve any operations. Why would it work? now? Support was offered by BNDES at that time. It didn’t work because the cost of the loan was prohibitive, almost more expensive than if we were to borrow on the market. That’s why Latam decided to restructure. It was even, I say today, very bad for Latam shareholders at the time, because the shareholder suffered during the restructuring. He lost everything, but on the other hand, the company restructured itself at the right time and came out stronger.

Former minister Paulo Guedes said he wasn’t going to give airlines a “lazy” time. What changed in relation to the Lula government team? I see the team touching on some topics that, perhaps, in the previous government, we did not have the opportunity to touch on, which is the cost of operating in Brazil. There is no point in launching Voa Brasil without introducing cost reduction measures.

I see the government concerned about this now, even in light of what is happening. There is no point in launching Voa Brasil to try to lower the fare, when one of the companies is in chapter 11, which shows that the problem is the cost of operation. It’s not necessarily financing or price.

What is the correlation between the sector’s effort to lower prices and the negotiation of the package? It is the government giving subsidies to consumers to purchase tickets through easing tax debt and regulatory? We have to look at things separately. Voa Brasil is a program that aims to give visibility to tickets that are sold at more affordable prices for certain audiences. The government is not financing travel for anyone at this time. It is not giving incentives to people who are going to buy on Voa Brasil. It is only aggregating tickets for less than R$200, which are already there, theoretically, and which companies sell, from time to time, but will concentrate on those audiences and routes. There is no public money in Voa Brasil.

Then there is the discussion about how to solve the sector’s long-term problems, which are operational costs and fuel prices. You have to find a solution for this, be it Petrobras, distributors, incentives, more competition or everything together. We don’t have that drawing yet. We are interacting with the ministry and Petrobras to try to find a way.

But the other costs may not come from the Treasury. Reducing judicialization means stopping spending money on compensation that doesn’t make sense globally.

Recently, the companies announced, alongside the minister, an effort to lower prices. Latam only promised to increase the supply of seats, but Gol and Azul announced ticket quotas with price ceilings, however, above the average practiced in 2023. Does this mean that it will increase further? The consumer can trust this effort? I will not pass judgment on what they proposed. The price drops with more supply. If there is no supply and the cost is high, the price goes up. That’s why Latam is working to grow in Brazil. Our market share, which was close to 30%, rose to 37% or 38%. I’m bringing a plane to fly in Brazil. This will lower the price.

Latam committed to increasing capacity, doubling the growth we predicted for 2024. From 3% to 4%, I said [subir para] 7% to 8%, and maybe more. That’s why I’ve been looking for a plane for a long time. I want to gain market share. Our proposal is to advertise prices below R$200 every week. I am encouraging entry prices, for those who are price sensitive, and not average prices.

Is there a solution for the airlift purchased at the last minute, which is very face? Around the world, the price varies depending on anticipation. I need passengers who buy last minute because they are willing to travel for a higher price. This is who travels on business. If I lower the highest prices, I will have to raise the lowest prices, because my average price needs to be at a healthy level.

If I sell fewer tickets at R$1,800, I have to sell less at R$200. Since 2017, Latam has had a program [com descontos] for those who need to travel last minute due to illness. But I’m not going to give a discount to business owners who need to fly to close a deal. He can pay more. And he helps me offer a ticket for R$200 or R$300. Without him, this ticket doesn’t exist.

Is a ticket purchased at the last minute more expensive than historically? The curve rises almost evenly. The problem is that the higher price attracts attention. Nobody posts on Instagram that they traveled for R$199. Those who post are those who traveled for R$1,900. This level above R$1,500 represents 6% of people. But they make a tremendous noise.

O sir. he said be dying to look for a plane. One of the alternatives is to buy a Gol plane, but if you do that, won’t the seat supply in Brazil remain the same? What is the advantage for the passenger? When we made that commitment at the end of last year [de elevar oferta] for 2024, we looked at what we could do to look for a plane. I’m bringing planes from other countries and trying to take advantage of the space that exists in the Brazilian market.

I’ve been looking for a plane for a while, but there are several things going on. It has a chronic problem. New Pratt Whitney engines [fornecedor de motor] they are lasting less and needing repairs sooner. This reduces the amount of plane available. Manufacturers delay deliveries. There is a challenge to continue growing. I was going to return the Airbus A319s this year to bring the more modern A320 and A321, but they are delayed. I gave up on returning it. I am looking for alternatives to continue adding capacity. Any plane is an alternative.

Including the Boeings of Gol, despite you having a fleet of Airbus? Funitarian for you? I prefer Airbus because I have my entire organization prepared for it. But between having Airbus and not having any other plane, obviously, Boeings are an option. We are not looking specifically at Gol. Gol has several planes grounded. Who knows, we might be able to make them fly. What matters to the passenger is having a plane to fly. If it’s stopped, it doesn’t help to have an offer and lower the fare. We want to place an offer and commit to growth in Brazil as we have done in the last three years.

In the judicial recoveries of Avianca Brazil and Latam, there were attempts by other competitors to buy assets, generating tension and the risk of disrupting the processes. This demonstration of your interest in Boeings of Gol can disrupt the competitor’s process and harm a sector that is already so shaken? At the end of 2023, we already expressed in a very transparent way the need to look for more planes. It was public and notorious. We were already looking for this long before Gol chapter 11. If I had forced or encouraged something to make Gol enter chapter 11, then it could be said that there was some intention. From the moment we knew that there were planes parked and we could have access to this capacity, we are looking for this like any other. So, I don’t think it can get any worse, because it’s part of the game.

Nothing changes, they continue negotiating. If the lessors [arrendadores de aeronaves] If they decide to take the planes and place them in Singapore, Europe, Brazil, it will be their decision, following the precepts. We are calm, we expressed our interest beforehand, it is in the hands of the lessors talking to Gol. We are interested in growing, this is the message we support. The situation with engine and Airbus delays has made us look for any alternative on the market.

This expression of interest in the Boeings strengthens the lessor in negotiations with Gol, no? I think it helps Latam to have more space and continue growing in the Brazilian market. And it is a benefit for the passenger, who will have planes sooner, whether with Gol or Latam, flying here in Brazil. I don’t think it has a direct impact. Just as Azul expressed several things during our chapter 11, she had the right to express whatever she wanted. And in the case of Avianca, what happened was a dispute over assets. Latam kept 13 planes and put them into flight in 2019. The competition was more for space in Congonhas, with all that fighting, but the planes enabled growth.