The ALTA Airline Leaders Forum, the largest annual for airlines of the Latin American and Caribbean region, opened Sunday in Brasília under the theme of “Industry competitiveness in the current climate.” Subjects raised at the opening press conference included infrastructure improvements, the entry of low-cost airlines, and repeatedly the cost of kerosene, which in Brazil tends to comprise a third of an airline’s costs compared with 20- to 25 percent globally.
One of the first questions directly addressed current events: with riots in Chile and Ecuador, and an election in Argentina that promised peaceful but still large change, what is the Latin American climate for airlines?
“Airlines always have to deal with external events…We're no different than others. Hopefully, this will be temporary,” ALTA executive committee president Pedro Heibron responded, putting political disruptions in the same class as other events such as health crises or natural disasters. He also observed that Latin American aviation has long shown resilience.
Meeting In the Political Capital
Brazilian Civil Aviation Secretary Ronei Glanzmann spoke with pride of the record and plans for aviation of the government, which took office ten months ago. He started with the choice of Brasília, the country's political capital, rather than picking the business capital, which offers more flight connections. “Normally such an event would be in São Paulo, but with ALTA we've brought it to Brasília,” he said. “The [Infrastructure] Minister will be here tomorrow, he's enthusiastic about the event.”
Glanzmann cited areas in which the government has improved or is improving the climate for air transport: the opening of Brazilian airlines to up to 100 percent foreign capital; deregulation, citing specifically Congress’s decision not to interfere in the market by mandating a free baggage allowance; and bringing low-cost international carriers, which in the future regulators will allow to operate domestic routes as well. He noted that four important airports ceded to private enterprise will inaugurate new facilities, and in regional transportation, a “green field” airport was built from scratch in the Northeastern city of Vitoria da Conquista. “Infrastructure is no longer the bottleneck,” that it once was to growth, said Glanzman. Citing the government's plans to expand cities with scheduled air transportation from some 130 to 200 and the annual number of passengers from 120 million to 200 million, he declared, “there's a large space for growth.”
ALTA CEO Luis Felipe de Oliveira also welcomed ALTA’s selection of Brasília, observing that the county ranks as Latin America's largest aviation market. “ALTA isn't well known in Brazil, and for many years was separate from Brazil...Our role is to integrate the region,” he said. He also pointed out aviation’s economic role: “Every flight creates income for many sectors...from taxes to the government or more hot-dogs sold by the airport concession.”
Expensive Jet Fuel
Kerosene in Brazil bears the burden by state excise taxes, which once ran as high as 25 percent and have fallen thanks to agreements brokered by the Civil Aviation secretariat between states and airlines tying reductions in the tax to increases in scheduled flights. “The best example is São Paulo, where the [excise tax] was reduced from 25 percent to 12 percent, which has an important effect because most Brazilian airlines go through São Paulo two or three times a day,” said Brazilian Airlines Association president Eduardo Sanovicz. Airlines added hundreds of weekly departures, including to cities previously without service.
Sanovicz also spoke of increased cooperation in the months of the new government, including in the area of airport concessions. “We were heard, and we enhanced the process,” he noted, with each round of concessions seeing improvement from the previous one. Airport operators and airlines can now negotiate improvements that would increase airlines’ costs. He applauded the reduction in the kerosene excise tax by 17 of Brazil's 27 states.
Vision of Regulatory Unification
Sanovicz sees regulations as the next great challenge facing aviation in the region, with a revision of the Brazilian Code of the Air, long underway and expected to win approval later this year. He sees “a space for integration, for regulatory and air space control in the entire continent.”
It's absolutely possible to advance in regulation, to create identical rules throughout the continent,” said, recalling that when Brazil abolished air fare control in 2002, the airlines transported 30 million passengers a year, and before the economic crisis of 2015, that number had grown to 140 million.
However, he expressed some doubt about low-cost carriers disrupting the market. “Some of their costs at one end are in London or [other overseas markets.],” he explained. “When they operate [both ends] in Brazil, they'll share our costs.”
Meanwhile, delegates cited government-created impediments to air traffic growth. De Oliveira said that the concession plan used for the Lima airport means that 46 percent of revenue goes directly to the government, which raises costs for airlines and consequently for passengers. He sees as deeply flawed Mexico City’s plan to establish three airports, with domestic and international flights handled at different locations. “Two airports connected locally does not work well,” he insisted. The plan would sacrifice connectivity, and Mexico would lose the opportunity to be a hub, he added.
Asked about the effect of the 737 Max grounding, Heilbron demurred. “I don't think I can add that much to what's already known” given the heavy press coverage,” he said. Gol, AeroMexico, COPA, and Aerolíneas Argentinas have felt the most effect, he noted, before observing, “I think no one is disclosing the economic impact.” Solving the problem means recertification of the 737 Max by the Brazilian government. Glanzmann said affirmed Brazil as one of the world’s four main certifiers, due to Embraer. “The Brazilian government is looking for a solution as soon as possible, and our agency is involved in the process,” he concluded.