Brazil’s Airline Crisis Is a Perfect Storm of Economic Woes and Bad Politics

During a special session on the Latin American market, as part of the presentations given for International Air Transport Association (IATA) Media Day in Geneva, IATA’s Peter Cerda, Regional Vice President, Americas declared Brazil one of the most expensive countries in the world for airlines to operate.

“Brazil is engulfed in a perfect storm as airlines struggle under the burdens of a deepening recession, a deteriorating Real and government policies that impose crushing costs on the industry,” Cerda told reporters.

Airlines in Brazil, Cerda says, had combined losses of nearly $1.56 billion Reals (USD $400M) in the first half of 2015. This weak performance in Brazil is a significant driver in the region’s overall poor performance.

“The deepening recession in Brazil is dragging down the industry across the continent,” IATA Director General and CEO, Tony Tyler, said. “Earlier this year we projected that Latin American airlines would make $600 million profit and now we see a $300 million loss in 2015. The situation is being made worse by government policies which inflate fuel prices and other critical infrastructure costs.”

Though Brazil is a major oil producer, IATA reports that airlines face fuel costs as much as 50% higher than other countries in the region. “The Petrobras import parity pricing formula in place overprices fuel more than $400 million each year,” Cerda said.

Cerda highlighted a lack of “strong commitment” from the Brazilian government to help develop and support the aviation sector. “The country is overly bureaucratic and a very difficult place to do business,” he said.

One example of the nations’ bureaucracy impeding efficient airline operations has come as the country prepares to host the Olympics. National Civil Aviation Agency (ANAC) officials have flooded airlines with an estimated 50,000 notifications requesting that airlines provide information on slot utilization during the World Cup, as part of its preparations for the Olympics, though the two events differ dramatically their air-travel requirements, Cerda explains.

While the World Cup events were held in 12 different locations, with differing route demand, according to the point of origin of fans, and some traveling only to attend those specific games but not onwards to other events, the Olympics will be held in Rio with route demand originating from all around the world.

Beyond this, Cerda says, “Brazil doesn’t adhere to its international obligations.” Though Brazil signed the Montreal Convention 1999 (MC99) in 2006, which sets global standards for the airline industry, Brazil’s ANAC has set up separate standards under Resolution 141, with some provisions that go against the standards of MC99, specifically with baggage allowance and rules on flight delays and cancellations outside of airlines control.

“There is an increasing number of small legal actions resulting in lower courts ruling moral damage, thus creating legal uncertainty and inconsistency,” Cerda said. “Brazil needs to adhere to all of the Montreal Convention and promote a single and consistent legal framework for airlines in which the airlines can operate with confidence and invest without legal uncertainty.”