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Airlines and car rental companies expect leisure travelers to replace business demand, but possibly not enough to draw the revenue spike they first dreamed about.
Brazil’s biggest car-rental agency is concerned that the country has yanked in the welcome mat for World Cup soccer fans.
When the country was picked in 2007 to host the world’s most-watched sporting event, Localiza Rent a Car SA Chief Executive Officer Eugenio Mattar said he foresaw “an explosion of tourists.” Now he said he sees lukewarm demand from the event as social unrest in the country has dampened fans’ spirits and may detour tourists.
Brazilians aren’t seeing the promised benefits of being the World Cup host, with some transportation projects unfinished and stadium costs that swelled more than 40 percent to at least 8 billion reais ($3.53 billion). Protests across the country that began last June in demand of better education and healthcare turned deadly, reducing potential benefits for businesses such as Localiza, according to Mattar.
“The country of soccer doesn’t want to host the World Cup,” Mattar, 61, said in an interview at Bloomberg’s Sao Paulo office. “That elan is gone.”
Mattar’s comments defy predictions from Moody’s Investors Service saying Localiza, based in Belo Horizonte, Brazil, would be among the companies best positioned to benefit from the World Cup, alongside food and beverage company AmBev SA and airline Gol Linhas Aereas Inteligentes SA.
Moody’s said it expects the influx of visitors during the tournament should contribute to a 10 percent to 15 percent increase in Localiza’s car rentals this year, according to a March 31 report.
Analysts estimate Localiza revenue will expand 10 percent this year after an 11 percent increase in 2013, according to estimates compiled by Bloomberg. Mattar declined to comment. Eleven analysts rate Localiza shares buy, 11 say hold and one recommends selling.
Localiza shares fell 2.2 percent in Sao Paulo this year through yesterday, putting its market value at 6.9 billion reais. Cia. de Locacao das Americas, a car rental company that specializes in fleets, fell 54 percent this year. The BM&FBovespa Small Cap Index is down 4.2 percent this year.
Mattar said he credits the 40 million Brazilians who have moved up to the middle class over the last decade, more fliers and credit card users, infrastructure investment and internal tourism for the company’s performance.
Localiza is withholding plans to increase investments and boost its market share until the government signals a change in policy that improves the outlook for business and the economy, Mattar said. Localiza, which has 1.3 billion reais in cash, may distribute a special dividend this year unless a business opportunity comes up, he said.
The government and new president to be elected in October must change economic policy to contain spending and spur investments, he said. The initial policy statements by the two main presidential hopefuls from the opposition, Eduardo Campos and Aecio Neves, are very encouraging, Mattar said.
They represent a “change of direction in terms of valuing investment, labor law reform, tax reform, control of government costs,” Mattar said. “Growth of 1.5 percent or 2 percent is not the end of the world, what matters is having a positive outlook for the future.”
The World Cup isn’t likely to benefit Localiza, he said.
Fewer-than-expected tourists and corporate travelers could result in neutral or lower revenue during the month-long event that begins on June 12 compared to the equivalent period in 2013, Mattar said. Gol and Avianca Brasil have said in separate interviews with Bloomberg that they expect at best a neutral result from the World Cup given the lack of business-related flying.
Localiza is basing its projections for the World Cup on demand during the Confederations Cup, an eight-team warm-up for the main event held last June.
“There was additional demand, but it was less than expected,” Mattar said. “We had prepared for greater demand that didn’t come.”
President Dilma Rousseff and soccer’s world governing body FIFA President Sepp Blatter were heckled by fans in a packed stadium at the opening ceremony of the Confederations Cup.
“They saw that the population is more aware,” said Henrique Kleine, head equity analyst at brokerage Magliano SA in Sao Paulo, in a telephone interview. “They saw that soccer doesn’t feed anyone.”
Tourists from the U.S., who have so far bought the most tickets outside of Brazil, 154,412 according to FIFA, are unlikely to rent cars because they aren’t comfortable driving in Latin America, Mattar said. Visitors from Chile to Colombia should help to make up for that, he said. In total, 2.6 million tickets have been sold, according to FIFA.
This year’s presidential election should help boost Localiza’s fortunes, as candidates need cars for campaigns, Fator Corretora SA analyst Alessandra Moratti said by telephone from Sao Paulo.
Rental car demand gets a bump of as much as 4 percent in election years, Moratti said. The World Cup is expected to contribute to a 2 percent increase in revenue, she said.
“The World Cup will generate less additional demand than elections,” Moratti said. “Ever since Brazil was announced as host, people have been overvaluing it.”
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