July 5, 2022

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Dida Sampaio/ Estadão

ITA failure cancels expectations of ‘fourth force’ in Brazilian aviation industry – Economy

Brasilia and Sao Paulo – with Suspension of the ITA processLess than six months after the start of flight, another attempt by the Brazilian market to wean itself from the “triad” of LATAM, GOL and Azul has yet to take off. You were not the first to try this barrier: it is worth remembering that last year, Avianca Brasil has gone bankrupt The company’s assets were auctioned a few months ago.

The second economist Juan Ferris, specialized in regulation, the problem in the Brazilian market is not necessarily a problem of concentration. According to him, the problem lies in the high operating costs. “The Brazilian system works, but it is much more expensive than in the rest of the world. It’s ineffective, it’s expensive,” Ferris said.

Concentration in three companies, as in Brazil, is not uncommon in other countries, as the sector is capital intensive, which implies more risk. Brazil, in particular, brings more difficulties to those who want stability. About 50% of the airline’s costs are tied to the dollar, which has exploded here.

At the same time, the country has the most expensive fuel in the world, one of the most complex and highest taxes on the planet, in addition, it is distinguished by a huge rate of elimination. “Brazil doesn’t have a more concentrated market than the rest of the world. There are three major airlines in the country, could there be more? Yes absolutely. But in the world, when you look at the roads and the airports, there is a focus, it is part of the business,” he said. Ferris.

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Organization problems

In addition to costs, there is another domestic problem of indirect costs, according to the economist: the organization of airport management is constantly changing. Most of the time, it is the airlines that bear these hurdles financially.

resolution Federal Supreme Court (STF) to decide to ban a passenger without proof of vaccination against COVID-19Having bought many tickets already, he is a recent example. “It is up to the airline to pay for the hotel during the quarantine period,” he explained. Long lines at airports due to customs issues also pose a risk to airlines, as many transit passengers end up losing connection due to delays.

“The set of deficiencies in the sector is a big problem and the problems are not only those of government agencies. Many of them still appear on the ground and in airports even after privatization. He noted that the judicial cost of baggage transfer in Brazil is very high.” “In general, there are poorly defined rules about who is responsible for what.”

Difficulties ITA

In a complex market like this, ITA, inexperienced in the sector, has arrived. The company did not have a competitive differential business model compared to others. For example, Gol came to market with a “low cost” strategy, entered Azul to explore certain routes with smaller aircraft, and evaluated André Castellini, partner in Bain & Co..

Ita began operations in the middle of the pandemic, shortly after an acrimonious dispute between Azul, Latam and Gol over the “inheritance” of Avianca, a company that had the strength to operate in the domestic market, but, according to analysts, erred when entering the international market, where competition is stronger. .

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“ETA arrived without exploring the market niche or any differentiation from the point of view of economic rationality,” he assesses Felipe Bonsensou, a partner in Bonsenso Advogados and a specialist in aviation. According to him, a passenger-focused nuance, such as free baggage handling, went against what it is like to fly today, charging everything separately, specifically to cover costs.

“He’s a new guy in the market, at a challenging time, and he’s taking a beating. What you need to do is raise capital if you want this process to continue. There hasn’t been any consolidation in a sector like this in just three months,” Ferriss assessed. “Flying for those of the same size.”

Bus connection

For the economist, the firm sought demand with an unexpected supply. The idea of ​​creating new points of interest for flights with the support of the Itapemirim bus fleet led to the release of routes from cities with low demand, but created many options for routes along the nearest highways. “ETA designed a logic for using the bus to fill the trip which would not be possible today, but passengers need to learn that this possibility exists.”

To make matters worse, in recent months all costs — aviation and ground transportation — have gone up due to the rising dollar, inflation and fuel. “The company is experiencing a complex shock to the sector. And to give you an idea, jet fuel is up 90% this year.” In addition to the cost, there is no time yet for this passenger to make extensive use of the new routes, according to the expert. “The plane is left empty and the bill is not closed.”

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