Yesterday, Donald Trump added Brazil to the coronavirus travel ban list. While the aviation industry is currently mostly on hold, the Brazil-US market was in the top three of country pairs in Latin America in 2019. How affected will it be due to the current ban?
The market grew dramatically in 2018
Brazil and the US are the two biggest countries, by population in America. Over the last few years, airlines have increased the traffic between both nations, helping the development of ties.
For example, in 2018, the traffic between the US and Brazil grew 34%, according to information provided by the Latin American and Caribbean Air Travel Association (ALTA).
That year, LATAM launched its services to Las Vegas and Boston, while GOL inaugurated services to Miami and Orlando. In 2017, Azul also increased its services to the US.
At that point, GOL had a sweet deal by connecting some cities such as Brasilia and Fortaleza directly with Florida with its Boeing 737 MAX fleet. After the grounding of the Boeing bestseller, GOL changed its US routes due to performance restrictions, as Joao Machado reported.
Additionally, American Airlines also reaffirmed its commitment to the South American region, including Brazil. Recently both American and GOL deepened its relationship with frequent flier reciprocity.
What about 2019?
Last year, the air market between both the US and Brazil slowed down a bit. According to ALTA, the market was the third most important in Latin America after Mexico-US and Panama-US.
In 2019, ALTA registered over 2.2 million passengers between the US and Brazil, a 2.6% decrease compared to 2018. Quick note: the Mexico-US market was still by far the biggest extra-regional in Latin America, with almost 9.5 million passengers. Meanwhile, Panama-US had over 2.58 million passengers.
As Joao Machado wrote, “2019 was a hectic year for the Brazilian aviation industry, with plenty of ups and downs.” While the country finally recovered from the 2015 recession, Avianca Brazil, the fourth airline, disappeared. GOL also faced a new crisis with the grounding of the 737 MAX.
“Brazil aviation is a study in contrasts (…). The opportunity is tremendous – trips per capita remain well below more mature markets,” wrote CAPA last year.
And in terms of the US market, the opportunity might be gigantic. As we saw, the flight corridor between the US and Mexico is far superior to any other country pair in the region. But Brazil could have an excellent opportunity to put up a fight in this segment.
Before the current crisis, Brazil was expected to overtake Japan as the world’s fifth-largest domestic air market in the next seven years. Still, annual travel per capita is under .500.
Now, what happens?
Before the US shut the air corridor to Brazil, CAPA said it expected the Brazilian air market to shrink.
At the moment, there is no certainty when the US will reopen its borders to Brazil. Bot nations are the most affected worldwide by the coronavirus pandemic, in terms of deaths. By March 2020, the market between both countries had declined 29.9%, according to ALTA.
CAPA’s fleet database says that Azul has 30 aircraft in service and 124 in storage. GOL has 10 in service and 121 in storage and has said it might let some leases expire and become smaller. LATAM is also in trouble, not just in Brazil but in all South America.
Very likely, when Brazilian airlines resume their normal operations, they will have to stimulate demand with lower fares. This will happen both domestically and internationally. Additionally, the airlines will have to resize and work together to tackle one of the main issues in Brazil: the high operative costs.
If they don’t do it, demand will bounce back later; also, international airlines will delay their operation to the country. We can see some of this already happening. Aeromexico has delayed their flights to Sao Paulo until July. The airline did it even when Brazil and Chile are the two countries in South America to remain open.
How will the Brazilian aviation market bounce back? Let us know in the comments.