what changes in the price with the situation of Gol, Latam and Azul

The specter of yet another consolidation in the Brazilian airline sector is in the air given the judicial recovery of Gol in the United States. The company is the second largest in Brazilian commercial aviation, with a 30.7% share of the domestic passenger transport market, according to the National Civil Aviation Agency (Anac).

The possible purchase of Gol or its assets by a competitor – Latam and Azul make moves in this direction – tends to be reflected in the price of airline tickets, as has occurred on other occasions.

And this in a scenario that already has higher prices. In one year, air tickets became 19.1% more expensive – more than four times the general inflation measured by the latest IPCA-15, released in March by IBGE.

A study by the Administrative Council for Economic Defense (Cade), a competition regulatory body in Brazil, shows that the incorporation of Webjet by Gol, in October 2011, resulted in an increase of up to 16.42% in ticket prices.

According to Fernando Franke and Guilherme Rezende, authors of the study, this act of concentration represented the acquisition, by the second largest Brazilian company, of an important player that was gaining market share and that represented a threat to existing companies.

More concentration in the airline sector, more expensive tickets

“[A consolidação do setor] it would be bad for the consumer, because less competition is always negative”, says Bruno Corano, fund manager in the United States.

The concentration on domestic passenger air transport has advanced in the last 20 years. In February 2004, the share of the three largest companies (Varig, TAM and Gol) was 84.8%. Twenty years later, the three leaders (Latam, Gol and Azul) dominated 99.5% of the market.

Consolidation is not a simple process. It would need to be approved by Cade. Ricardo Jacomassi, partner and chief economist at TCP Partners, sees other barriers: “There are many challenges for a transaction between companies, due to their debt”.

Keeping an eye on the competitor, Latam and Azul make their moves

Gol, pressured by high debts resulting from the pandemic, entered judicial recovery in the United States in January, attracting the attention of competitors.

Latam expressed interest in aircraft currently operated by Gol, despite differences in the types of plane used by the two companies on short routes. Latam operates predominantly with Airbus, while Gol operates exclusively with Boeing.

According to the newspaper “Valor”, Latam’s first forays would have taken place even before Gol entered Chapter 11, as judicial recovery is known in the United States. The matter was the subject of legal challenge in New York court.

Azul, Brazil’s third largest airline, also expressed interest in Gol’s assets. It is a strategy similar to that adopted by Azul during Latam’s judicial recovery, between 2020 and 2022, when it showed interest in the company’s Brazilian operations.

According to Corano, the company is interested in licenses for Gol routes, where there is little overlap between the two companies, and in spaces in warehouses and airports, many of them inherited from the former Varig, which stopped flying in June 2006. The reason for the Latam is different, says the expert: it would be an attempt to contain competition.

The aeronautical law specialist at Demarest Advogados and former president of Anac, Marcelo Guaranys, points out that the worst scenario for the sector is the exit of a company from the market, with no alternatives to replace it.

Gol seeks to show that it is viable, experts say

Experts consulted by People’s Gazette indicate that Gol is committed to demonstrating that its value is greater in operation than when idle. The prevailing expectation is that there will be no major changes during the process.

“We had the recent judicial recovery of Latam, which operated normally and did not impact the sector. We expect the same in the case of Gol”, says Jacomassi.

Corano assesses that, if Gol manages to comply with the agreements and obligations that are essential during a judicial recovery, the situation will remain stable. “Eventually, they will rethink the size of the operation and resize it. This could mean reducing routes and selling some planes. However, generally speaking, no significant changes should be expected on the routes that remain,” he concludes.

The airline sector is experiencing routine losses, even with a sharp rise in ticket prices

The Brazilian airline sector has faced a series of challenges in recent years, resulting in significant losses.

According to a survey carried out by José Ricardo Botelho, president of the Latin American and Caribbean Air Transport Association (Alta), companies in the sector accumulated a loss of R$54 billion between 2010 and 2022. As a whole, they managed to close in the black in just three years of this interval (2010, 2017 and 2019).

One of the main complications for the sector was the Covid-19 pandemic. “Aviation suffered a major impact in the first wave, in 2020, it began to recover and was affected again by the second wave”, says Guaranys.

The domestic market has not yet fully recovered from the effects of the pandemic. Accumulated demand in the 12 months up to February was 1.1% below that recorded four years ago. The situation is even worse in the international segment, with a difference of 5%.

Another problem was the sharp increase in the price of oil, driven, in part, by the war in Ukraine, which began in February 2022. Aviation kerosene (QAV) corresponds to 36% of the ticket price, according to the Brazilian Business Association Airlines (Abear).

Since then, there have been rises in prices. In June 2022, the accumulated increase in fuel in 12 months was 123.26%. In January 2023, it was 51.29%, and in December, 48.11%.