what are the risks of the government program

The government intends to put into operation by August the “Fly, Brazil” program, which allegedly seeks to “democratize” air transport and give more dynamism to the sector. The main measure was revealed in March by the Minister of Ports and Airports, Márcio França: the sale of airline tickets for BRL 200 to specific groups of consumers.

The program was well received by the main companies in the sector, which formed a working group to discuss the proposal. In spite of this, or for this very reason, the initiative entails risks. The main ones, according to specialists, are the increase in prices for other passengers, to pay for the lowering of part of the tickets; discouraging competition and efficiency; and the creation of a relationship seen as “dangerously close” between the government and big business.

According to the minister’s public statements, tickets of R$ 200 will be directed to federal, state and municipal public servants who earn up to R$ 6,800 a month; Social Security retirees and pensioners; and students assisted by the Student Financing Fund (Fies).

In addition to the choice of a very specific target audience, attention is drawn to the maximum income of civil servants who can benefit from the program. A monthly income of R$ 6,800 is very far from the poorest sections of the population. This ceiling is equivalent to 2.4 times the average income of employed workers (R$ 2,880 in the first quarter of the year, according to the IBGE), and more than five times the minimum wage (R$ 1,320).

Priority will be given to those who have not traveled in the last 12 months, with permission to purchase up to four tickets, and financing will be provided by public banks such as Caixa and Banco do Brasil, with payment in up to 12 installments – but without subsidies, according to France.

According to the minister, the program will involve vacant seats on airlines in the low season, which runs from the end of Carnival to June and from August to November. In the first quarter, according to the National Civil Aviation Agency (Anac), the average occupancy rate for domestic flights was 78.9%.

In a Senate hearing in April, França said that the idea came from the companies themselves, who would have approached him at the beginning of the year asking for government support to reduce costs. One of the main complaints is the price of fuel.

According to the minister, the airlines would have suggested that the government indicate the CPFs of people who don’t usually fly – the “90% who don’t fly”, in his words. These people would have access to the cheapest ticket program.

“What they [empresas aéreas] ask us? That in their own applications, without any subsidy, they implement the flights that are going to be at R$ 200 and we are going to say that such person has not flown for a year, so he can buy it, “he said.

Air fares hit record in 2022

It is not clear how the companies are going to lower the prices of part of the tickets to R$200, at a time when the movement in the sector is exactly the opposite. With companies seeking to rescue the profitability lost in recent years and pay off debts, leaving behind the “legacy” of the Covid-19 pandemic, tariffs broke records last year – and the prospects are for further increases.

“There is no such thing as a free lunch or lower cost-free airfare. Entrepreneurs won’t want to squeeze their profit margins. The effect [do programa do governo]in the end, it will be a combination of layoffs, sometimes invisible, involving low-skilled personnel, with price increases for all other passengers”, says Cláudio Shikida, professor at Ibmec-MG and specialist at Instituto Millenium.

The average fare for 2022 for domestic flights was BRL 645, well above the values ​​for 2020 (BRL 444) and 2021 (BRL 531) and also the highest in the historical series of the National Civil Aviation Agency (Anac), started in 2011. The average tariff for January 2023 (R$592) was the highest for the month since 2012. And the one for February (R$572) was below only those recorded in 2012 and 2014. All values ​​have been updated for inflation .

Specialist criticizes nod to companies that lead the concentrated sector

For Shikida, the program prepared by the government is not aimed at increasing competition or reducing entry costs for new companies in the market. Latam, Gol and Azul, the three largest, dominate 99.6% of the market, according to Anac.

“The government prefers to bet on creating a dangerously close relationship with the few companies that operate in the sector. It is not just an artificial caste of consumers that is created. It is worse: it signals to the few competitors that they will not have to make an effort in a more competitive environment. All they have to do is accept the government’s proposal”, says Shikida.

Industry leaders, by the way, seem to have approved of the idea. Latam Airlines said that the proposal goes in the direction of sustainably increasing air travel in the country.

Sought, Gol did not respond to questions from the People’s Gazette. In April, however, the company’s president, Celso Ferrer, signaled optimism. “The important thing is that we use this program at times of low seasonality to give access to customers who are not flying”, he said to the newspaper “Valor”.

Azul, in turn, told Gazeta that it sees the initiative presented as positive to encourage more Brazilians to access air transport. At the end of March, however, the company’s executive chairman, John Rodgerson, made a reservation: he said that the idea makes sense as long as the other passengers do not pay the bill – precisely the risk pointed out by experts.

“The question is how to do this in a way that is not like half-price tickets at the cinema, with other people paying more for it”, he said to “Folha de S.Paulo”.

The director of FGV Transportes, Marcus Quintella, has reservations about the government’s idea of ​​occupying companies’ share of “idle” seats. Seeking an occupancy close to 100%, he assesses, is unfeasible. “Companies usually work with a technical reserve, to serve, for example, passengers who missed connections or faced overbooking on other flights, transporting crew members”, he says.

Part of this reserve is used for last-minute purchases, closer to departure times, which tend to cost several times the average fare.

Aviation is slowly recovering from the pandemic

In terms of movement, Brazilian commercial aviation is slowly recovering from the effects of the pandemic. Although companies have sought the government for help, Quintella says that the sector tends to return to the same levels of 2019 by the end of the year, in domestic flights.

In March, demand was 5.1% lower than in the pre-pandemic period and the supply of seats, 1.7% lower, according to Anac. “There are routes between capitals whose movement already corresponds to 95% of the pre-pandemic”, says Quintella.

The scenario is different for international flights, whose seat supply is still 21.9% lower than in the pre-pandemic period. “The dollar and high interest rates prevent Brazilians from traveling abroad and Brazil’s attractiveness for business and tourism is not the best”, says the expert.

A more consistent expansion of the market, assesses Quintella, will not come from measures such as “Voa, Brasil”: “It is, basically, a matter of economy: if it goes well, the segment will too”.