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Despite COVID-19, Airline Capacity in Brazil Starts Rebounding
In the same week Brazil became the country with the second most confirmed cases of COVID-19 in the world, Azul Brazilian Airlines, GOL Airlines and LATAM, the country’s three major airlines, have started to roll out their networks for June. Somewhat counterintuitively, the three reported a capacity increase compared to their route networks in May.
Azul, which has been progressively growing its domestic network since the “essential air network” was launched in April, will start 53 daily operations, as per a research by Folha de São Paulo newspaper. With that, the airline will become the country’s largest by daily flights in June, with 168 operations on peak days.
Amongst the “new” destinations, the airline will restart flights in Congonhas-São Paulo Airport, the airport closest to São Paulo’s downtown area. While last year the airport was the center of a public fight for slots between Azul and the other majors, for weeks between April and May the airport had essentially no commercial flights.
GOL, meanwhile, will reach 100 daily flights during June, up from May’s 68. The airline, originally Brazil’s largest before the COVID-19 pandemic, will prop up its flights from Congonhas to key corporate markets, while also strengthening its operation from the Guarulhos hub.
The country’s largest airline by international traffic, LATAM Brasil plans on restarting flights to other countries, all of which will depart from São Paulo/Guarulhos International Airport. From June, destinations will be Frankfurt, Germany and Santiago, Chile, two international flights the airline has already restarted, in addition to London, Madrid, and Miami.
Domestically, the airline will operate 50 flights a day, up from 35 in May. Systemwide, LATAM Airlines Group expects to cover 9% of its pre-crisis capacity, up from 5% in May.
An Uptick in Demand, Still Far from Ideal
Azul’s call with investors about its first quarter results, conducted this week, gave interesting insights on how demand for travel has been behaving in Brazil during this crisis. More than once, the airline has mentioned that it only operates flights where it can fully cover variable costs.
“I think we are well off the bottom, which is good news,” Chief Revenue Officer Abhi Shah said. “I would say the bottom in terms of demand was in the second week of April — second and third week of April — and we have seen a bounce back from that, which is very good”.
Azul Chief Financial Officer Alex Malfitani said these flights help to stave off high levels of cash burn during the crisis, which partially explains better forecasts regarding cash flows.
“There is a good cushion between the variable cost of the flight and the revenue that we are getting,” he said. “That is why you are also seeing a significant increase from the number of flights that we flew in April to the number of flights that we are flying in May.” Azul expects to burn between 3-4 million reais ($540,000-$720,000) per day in May and in June.
However, Shah warned that the corporate market, “a big part of all demand in Brazil,” is not back yet, especially given to quarantine measures taken throughout the country. “Corporate [demand] is going to be very, very important and is something that we will be watching very carefully to measure how to bring back the network.”
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