The sadness of some is the happiness of others. The Brazilian saying seems to apply perfectly to the current scenario for airlines that operate in the South American country.
Oceanair Linhas Aereas Ltda., which operates under the Avianca Brasil brand, filed for judicial recovery in December, and Gol Linhas Aereas Inteligentes SA is the best-performing stock in the Ibovespa this month. Gol, Brazil’s largest airline by market share, is up 15 percent in February, while the benchmark index rose less than one percent. Azul SA is the nation’s third largest operator and has gained 4 percent over the same period.
“We continue to believe that Avianca Brasil’s financial troubles are an overall positive for the Brazilian industry,” Raymond James analyst Savanthi Syth wrote in a Feb. 5 report. Gol is the largest near-term beneficiary of Avianca’s troubles, while Azul is potentially a bigger beneficiary in the medium term, Syth said in another report from Feb. 12.
For years, Avianca Brasil vexed local competitors, gaining market share by offering fancy services at lower prices. The privately held airline owned by Jose Efromovich consolidated its position as the fourth largest domestic airline, gaining almost three percentage points of market share between 2015 and 2017, before losing some of that after the company asked for judicial protection against creditors. During that period, the overall number of air travelers in Brazil also expanded by about 3 percent, as Latin America’s largest economy exited from the worst recession in its history.
Now, Gol is poised to benefit the most from Avianca Brasil’s debt restructuring, as about 80 percent of the routes of the two airlines overlap, Bradesco BBI analyst Victor Mizusaki wrote in a note last month. As passengers grow wary of buying tickets from Avianca Brasil, shares of Latam Airlines Group SA, the second largest in the country, are also taking off. The airline is up 10 percent since the beginning of the year, the second-best performer in the MSCI Chile Index.
Avianca Brasil announced it will discontinue direct flights to Santiago, Miami and New York from Sao Paulo starting March 31. The company is also trying to get financing before a mid-April deadline to keep its brand-new fleet of leased Airbus aircrafts and its coveted domestic routes, which are concentrated between Brazil’s busiest cities of Sao Paulo, Rio de Janeiro and Brasilia.
The history of judicial recovery for airlines in Brazil isn’t promising. Varig, Vasp and PanAir disappeared off the map after falling into debt trouble.
“The potential demise of Avianca Brasil is a possible game changer for the domestic Brazil airline industry,” Raymond James’ Syth said.
Gol shares were slightly down on Friday, still poised for the third weekly gain in a row. Azul retreated 1 percent at 8:23 a.m. in Sao Paulo.
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