Brazil’s government and its domestic airlines have renewed a simmering feud over ticket prices in the run-up to the soccer World Cup later this year, with the government alleging price gouging and threatening to open up domestic routes to international airlines.
The industry counters that it is being crippled by poor government aviation policy, and cannot be accused of gouging since it is not making money.
The dispute speaks not only to Brazil’s economic woes, but to the larger problems facing the aviation industry in Latin America, where the domestic commercial sectors typically face challenges of high levels of government regulation and poor infrastructure.
The latest chapter in the fight between Brasilia and the domestic carriers began earlier this week when Gleisi Hoffmann, a cabinet minister who serves as a sort of national chief executive, below the President, gave a blunt interview to the national daily newspaper Folha de Sao Paulo in which she said the government is considering allowing foreign companies to operate on domestic routes during the World Cup because ticket prices are so high.
Some 600,000 foreigners and three million Brazilians are expected to take in the soccer tournament, and games will be played in 12 cities scattered across the vast country. Tickets on some segments are now selling for as much as $1,200; some fans anticipate watching games in four or five different cities, tourism officials say. The hotly anticipated England-vs.-Italy match, for example, will take place in Manaus in the heart of the Amazon basin.
Ms. Hoffmann talked about “abuse” in pricing, and said the obvious solution was more competition. “We will assess all possibilities, including opening the market,” she told Folha. “To really balance the market, one would have to authorize [foreign companies] to operate in Brazil … It can be fast, and it is viable.”
Industry analysts scoffed, saying there was no way that in notoriously bureaucratic Brazil a foreign airline could set up shop and be operational by June, when the tournament begins. Ms. Hoffmann said the government might use “media provisoria” – a sort of legal manoeuvre that allows it to implement a law and have it approved by Congress later – but most observers say that isn’t feasible either.
“This speech clearly demonstrates that the present Brazilian government does not understand anything regarding air transport markets, operations, economics and international laws,” Respicio Espirito Santo, an expert on air transportation with the Federal University of Rio de Janeiro, said bluntly.
Brazil has only four major carriers, and few regional ones, he noted, and most routes outside the main corridors lack competition. “But the small number of carriers are a direct result of the very high operational costs,” and a number of fliers that is only a sixth, proportionally, of that found in North America, he said.
The Brazilian Airlines Association (ABEAR) declined to answer questions on the disagreement with the government, but said in a statement that it is doing all it can with regard to ticket prices. “ABEAR has already presented its technical propositions to the government to better the domestic flights operation, which involves not only an effort from the airlines, but also the development of airport infrastructure and reviewing the price system and the taxes on fuel, which is 30 per cent more expensive than in other countries,” the association said.
Brazil’s airlines are struggling with a currency that has fallen by 13 per cent against the U.S. dollar over the past year, a slowing economy and high fuel costs. Fuel and aircraft costs are both paid in dollars – and the squeeze has the airlines scaling back on their fleets and operations, and merging (Azul Linhas Aereas Brasileiras SA bought out Trip, for example, in 2012), which leaves consumers with fewer options.
“It’s correct that the average fare is very high for the period of the World Cup, and ABEAR is pushing government to reduce fuel and taxes: I think [the government] was pushing back – it’s political pressure and it’s all part of the business,” Lucas Arruda, a partner with Lunica Consulting, an aviation consultancy in Sao Paulo, said about the Hoffmann interview. “But they need to be a bit more careful. They can’t deregulate overnight.”
Government could instead be working to lower fares by improving airport management and infrastructure – many airlines would like to put on additional flights but can’t because all available slots are used, he said.
Brazil’s air transport market has been growing 10 per cent a year for each of the past five years, with up to 107 million passengers in 2012, while the average fares have declined 60 per cent from 2003 to 2012.