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Brazil’s Civil Aviation Minister Wellington Moreira Franco said he’s pushing the government to exempt airlines from federal taxes on the purchase of jet fuel as a weaker real increases operational costs.
Almost 60 percent of airline costs, such as fuel and aircraft leasing, are dollar-based, according to the Brazilian Association of Airline Companies. The real has weakened 9.8 percent this year as investors exit emerging markets in anticipation of a U.S. Federal Reserve decision to curtail its monetary stimulus.
Moreira Franco also is asking the government to allow foreign companies to increase their share in local airlines to more than 20 percent in a bid to boost investment in the industry. President Dilma Rousseff will decide whether to back the proposals in about 10 days, said the minister.
Gol Linhas Aereas Inteligentes SA may trim seating capacity further in 2014 to stem losses amid rising costs for fuel and stagnant travel demand, the Brazilian carrier’s chief executive officer, Paulo Sergio Kakinoff, said in an interview in Sao Paulo yesterday.
Gol fell 1.43 percent to 10.35 reais today. The real was little changed at 2.2747 per U.S. dollar.
Airline companies need government assistance, especially as the exchange rate increases costs, Pedro Galdi, chief strategist of SLW Corretora, said today.
“Allowing foreign capital would be very relevant,” he said by phone from Sao Paulo. “We might see some improvement, but Gol is still having a loss.”
As costs rise, Brazilian domestic demand for air travel is leveling off. The number of domestic passengers, which almost tripled from 2002 to 2012, is starting to stabilize at 100 million a year, according to the nation’s airline association.
Gol reduced its workforce by 13 percent in the first half from a year earlier to trim expenses.
Fuel accounted for 41 percent of Gol’s second-quarter operating expenses, the most among 16 carriers in the Americas with at least 100 planes, according to data compiled by Bloomberg.
With assistance from Christiana Sciaudone in Sao Paulo. Editors: Andre Soliani, Randall Woods. To contact the reporters on this story: Maria Luiza Rabello in Brasilia Newsroom at firstname.lastname@example.org; Rachel Gamarski in Brasilia Newsroom at email@example.com. To contact the editors responsible for this story: Andre Soliani at firstname.lastname@example.org; Helder Marinho at email@example.com.