Promise of cheap tickets under Lula comes up against costs – 01/08/2024 – Market

Brazilian airlines enter 2024 under pressure to reduce ticket prices. The clamor for cheaper travel comes not only from consumers, but also from the Lula government, which returned to the Presidency reviving the slogan that under the PT’s administration the poor traveled by plane. But the fall will not be easy.

The issue puts airlines in the spotlight at a time when they are still suffering the consequences of the pandemic, which halted the sector, and the War in Ukraine, which boosted fuel prices, among other reasons.

The spokesperson for the pressure for lower prices is the Minister of Ports and Airport, Silvio Costa Filho, who has announced dialogue with the sector to seek solutions, while Azul, Gol and Latam are committed to trying to sell cheaper tickets. However, experts warn that the recent resurgence in demand and the Brazilian regulatory model disfavor large promotions — such as those carried out by so-called low costs, low-cost companies that do not operate in Brazil.

In December, a high season month, when tickets soar, the presidents of the three companies participated in an event with the minister to announce a series of efforts. Azul said it will provide 10 million seats for less than R$799 this year, while Gol estimated 15 million tickets for up to R$699.

It may seem that the government was successful in the pressure to make tickets cheaper, however, in practice, the average real fare for a domestic flight was already R$618 from January to October 2023, according to the most recent data from Anac (Agência National Civil Aviation Authority). Around 53% of tickets sold did not exceed R$500, according to the agency’s measurements. The most expensive are those purchased at the last minute, close to the boarding date.

Latam, in turn, committed to increasing the offer of tickets by 10 thousand seats per day, which will be done by increasing its fleet. The measure should provide a breather at a time when the sector recovers the demand lost during the pandemic, surpassing 100 million passengers transported from January to November, for the first time since 2019.

Anac data shows that the ticket has become more expensive in recent years, going from an average level of around R$500 less than a decade ago (with checked baggage already included until 2017), to more than R$600 currently (apart from separate charge for those who bring suitcases). Despite the increase over time, the most recent average rates indicate a drop from R$657.86 in 2022 to R$618 in 2023, accumulated from January to October.

To show a more significant result, Lula will have to undo Voa Brasil, a R$200 ticket program for specific groups such as retirees and Prouni students, with which airlines have also made themselves available to collaborate.

The launch of Voa Brasil was promised for August, but it never got off the ground, and the new expectation is that the minister will meet with Lula in the first fortnight of this month to present the details.

Jurema Monteiro, president of Abear (association of airlines), states that the resumption of demand to pre-Covid levels suggests a return to normality, but the sector remains under pressure on supply. During the pandemic, companies parked hundreds of planes, but then needed to reinforce their cash flow to carry out engine maintenance, recertify equipment, purchase parts and parts to resume their operations.

“It happened all over the world. They didn’t have the cash to do it right away. So, they did it little by little. Not all of them were able to do it and some are operating with a smaller fleet and optimizing their networks. There are still routes with demand pressure, but without the capacity to increase supply, and this balance makes a difference in the composition of the price”, says Monteiro.

According to Abear, demand rose 7.5% between 2022 and 2023, but supply only increased 6%. “It means we have more demand growing than there is seat capacity in the market,” she says.

Tiago Pereira, director of Anac, also sees upward pressure, although some of the variables that influence prices have shown more favorable signs in recent months.

“The QAV [querosene de aviação] falling and the dollar on a downward trend are short-term pressures to reduce costs. But companies are still finding it difficult to expand their offer. If we are seeing an increase in the aircraft occupancy rate, and if they are reducing supply, then it is upward pressure. I can’t say what the final result will be”, says Pereira.

For Ricardo Fenelon, former director of Anac, it is difficult to see room for a price drop in Brazil as long as there is no cost reduction, economic improvement and increased competition. He warns of the strong debt that persists in the sector, and the moment of rising demand can be used to rebuild company margins.

“The increase in passengers does not mean that the companies are back to making a profit. Everything indicates that the government made a big mistake by not helping the sector, as they did in the USA. It is inconsistent to charge a price drop while increasing the tax cost of companies in R$11 billion per year with the new tax reform”, says Fenelon.

IDP professor José Roberto Afonso, who studies the sector, cites other global impacts, such as new standards for reducing pollutant emissions, which require investment in modernizing aircraft.

“What brings down prices is the entry of low cost companies. The problem is that in Brazil we have high cost [alto custo] and we want low price [preço baixo]. The authorities can say whatever they want. The account doesn’t close”, says Afonso.

For him, the government should formalize actions to make travel cheaper for people with health emergencies or death in the family.

“We have to be careful with the discussion we are having in Brazil. People complain about the price, but 90% of Brazilians don’t travel by plane. Of the 10% that travel, those who go for tourism on more popular trips have already learned that they need to buy with advance. The big problem is last minute tickets. The bulk of those who buy last minute, and pay a lot, are corporate and government, especially parliamentarians, first echelon of government and ministers from higher courts”, says Afonso.

According to Latam, it is difficult to make predictions now. “The price of fuel depends on the global dynamics of oil and exchange rates. And it depends on Petrobras’ pricing methodology. It is not an easy decision, but this should be the focus if we no longer want to be the country with fuel among the most expensive in the world.” world. Brazil also needs to follow global conventions and stop the habit of awarding compensation and moral damages in cases of contingency [para reduzir judicialização]”, says Latam in a note.

When contacted by the report, Azul states that “it has been building an agenda with public entities to improve the structural cost scenario”. Gol says it will run promotions and recommends customers plan to buy in advance.