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Brazilian Airlines Start ‘Essential Air Network’ to Avoid Complete Shutdown
Since the beginning of March, with the first cases of COVID-19 in Brazil, demand for domestic travel saw a dramatic and unprecedented drop. While the number of passengers and financial results were in a positive trend since 2019, airlines had to quickly react to this new scenario.
To avoid a deliberate shutdown of all air services in the country, the Brazilian Federal Government, along with state governments and the three major airlines — Azul, GOL and LATAM Brasil — have outlined an ‘essential air network,’ which was started this Saturday.
The number of weekly flights will pass from the originally planned 14,781 to 1,241 — a drop of 91.61 percent, and the new network is expected to last until at least the end of April.
According to the National Agency of Civil Aviation (ANAC), the project aims to “attend the Federal Government’s concern to maintain a network which keeps integrating the country, with adjusts so that no state gets out of at least one air connection.”
Indeed, all states and their respective capitals will continue counting on air services, albeit not necessarily by the three major airlines. However, the number of served destinations, especially smaller cities, will drop dramatically, from 106 to 46 — a decline of 56.06 percent.
In a press release, ANAC’s President, Juliano Noman, stated that “aviation in several countries is completely stopping. What we’re doing in Brazil is because we know air service is essential to help the country overcoming this unprecedented situation, allowing the transportation of materials, of health agents and of people who still need to travel.”
The lack of demand in Brazil has generated situations that would be unimaginable before the pandemic. A year ago, Azul generated a public fight with the other two major airlines for slots in São Paulo’s Congonhas Airport, largely used by corporate passengers. With the new situation, only LATAM Brasil will operate flights from the terminal.
LATAM, on the other hand, will pass Azul and GOL to become the airline serving the most domestic destinations in Brazil: 39. Before the crisis, Azul had almost double destinations when compared to its competitors. Now it will become the airline serving the least cities, 25, compared to GOL’s 27.
How Airline Executives in Brazil Reacted to the Demand Drop
The first confirmed case of COVID-19 in Brazil happened on February 26. At first, cases were all imported from Europe and amounted to a relatively small number. This negatively affected the international operations of local airlines, which saw a quick drop in demand.
In an interview to “O Estado de São Paulo” newspaper on March 11, Azul’s CEO, John Rodgerson, minimized the impact of the pandemic in Brazil, stating that “we are more concerned about the [price of the] dollar than with the coronavirus.” The start of March saw a huge devaluation of the Brazilian real.
While the CEO said that domestic demand was basically unchanged, in the same interview, Azul’s founder and chairman, David Neeleman, said that “as the days pass, people get more comfortable with the risk [of flying].”
However, with the flourishing of local cases and the start of lockdowns all over the country, Azul’s position about COVID-19 radically changed. Seven days later in another interview to “Estado,” Rodgerson mentioned “everyday the situation worsens” and that the demand drop was “…profound. I never saw anything like this.”
He also urged the government for “floating capital so we can go through these months, because I believe this will pass.” At the moment, the only effective action the Federal Government launched was an extension of refund payments for up to 12 months after the request.
Likewise, the words of competitors were as strong as Rodgerson’s. GOL’s CFO, Richard Lark, told Exame magazine that “Kaki [Paulo Kakinoff, CEO] knew he would prepare the company for a full shutdown, if needed”, claiming the airline is ready for a complete stop of 90 days. He stated that “we are ready for the worst. It’s our obligation.”
To Estado on March 17, LATAM Brasil’s CEO, Jerome Cadier, said that the industry in Brazil has worked on three lines with the government: help to the companies’ cash accounts in the short term, postponing of tax payments, and changes on refunding policies. At this moment, only the last point was announced. New credit lines were barely mentioned by the Ministry of Economy, although no further details were given.
According to Cadier, “the international [operation] is in a situation of very low sales, if not zero. On the domestic, the drop was brutal. We have an unprecedented combination of very low sales, high cancellation of trips and tickets postponings.”
“A small movement [by the government] is not enough. The crisis is enourmous,” said the CEO, who also claimed that “we are working with the possibility of a repressed demand during four or six months.”
And if the situation has seen any changes since Cadier’s strong words, it is very likely that it may have only changed negatively. When the interview was published, confirmed cases of COVID-19 in Brazil were 349, with one death. In twelve days, cases grew to 3,904, with 114 deaths.
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