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Latin American Economy & Business - April 2014 (ISSN 1741-7430)

REGION: World Cup not so exciting for airlines

According to latest estimates, over 600,000 people will be visiting Brazil during the upcoming FIFA World Cup, the once-every-four years football extravaganza due to be held between 12 June and 13 July. Some US$11bn has been spent on preparations for the event. The matches will be held in 12 different cities across the country. The vast majority of the visitors – perhaps over 90% will get to the country and to the different venues by air. On paper, this should mean a bonanza for Latin American and international airlines. In reality, apparently not: airline executives are decidedly down in the mouth about the whole thing.

Germán Efromovich, the Brazilian businessman with a controlling stake in Avianca, the Colombia-based regional airline, is certainly not hyping the World Cup travel experience. At a recent conference, he suggested that Brazil is just not ready for the expected surge in air travel demand. “You’re going to spend three hours going around in circles, you’ll go to another city 300kms away, and you’ll put the passenger in a bus or taxi, and he’ll arrive after the match is over. Then we’ll see what happens,” he said.

Enrique Cueto, the Chilean chief executive of LATAM Airlines (the partnership between Chile’s LAN and Brazil’s TAM) was in agreement. “I don’t know who’s going to win the games, but the airlines are going to lose with the World Cup” he said, adding, “if you do things right with operations you can wind up with a draw. You get it wrong and you don’t get to a game on time and you’ll soon see what you get.” Given that actually getting to the game ranks pretty high in the average football fan’s requirements, these top executives are clearly deeply concerned about the possibility of things going wrong, with all the associated bad press and reputational damage.

Behind that concern is the technical worry that the air travel system in Brazil is just not robust enough. In the last ten years, the number of Brazilian air travellers has more than tripled to around 200m per annum. Despite advances, and the expansion and modernisation of airline fleets, the country’s airport and air traffic control infrastructure has struggled to keep up. One sign of this is that around 4% of all of Brazil’s scheduled commercial flights are cancelled or not completed due to weather, mechanical, or staffing issues, about double the rate in the US.

While the government has been investing to increase system capacity, the consensus is that projects are still running behind where they need to be. Many Brazilian airports are still operating beyond their technical capacity. Expansion projects underway are being implemented by both private sector and public enterprises. Two years ago President Dilma Rousseff privatised a number of key airports. But results have been mixed. Earlier this month, she inaugurated the shiny new south terminal at Brasília, built by the Argentina-based concession holder Corporación América and Brazil’s Engevix. The project is on track for completion in May, before the World Cup starts. But others have not been so lucky. In Fortaleza, the venue for six World Cup matches, travellers will have to use a temporary canvas terminal building. In Viracopos, outside São Paulo, the new US$800m international terminal will not be ready on time. Some of the private operators point out that work has been delayed by slow and bureaucratic authorisation and environmental approval processes. At the start of March Infraero, the government aviation infrastructure agency, said airport expansion projects in seven World Cup cities were less than 50% completed. A government official cited by the Reuters news agency said that Guarulhos in São Paulo “is where we expect to get most blowback” – there, the automated baggage check and immigration systems are not going to be ready in time.

According to Paul Irvine, a Rio-based travel agent, “people coming to Brazil are going to be shocked, especially Americans, by how bad the airports are. There won’t be any catastrophic issues… but they will be chaotic and as ugly as heck.” John Strickland of JLS, an aviation consultancy, adds: “it seems that sufficient improvement will not be in place in time for the event, and airlines will pay the price with delays and disrupted flights bringing in the influx of traffic.”

On the plus side, in cooperation with government officials Brazil’s commercial airlines are re-drawing air-routes to reduce congestion. Using GPS positioning, software developed by General Electric, and advice from the Brazilian budget airline GOL, the new system offers a more efficient use of airspace and allows planes to fly closer together, reducing congestion. Budget airline Azul Linhas Aéreas says the new approach could help it reduce flying time on the Rio de Janeiro – Sao Paulo shuttle by about 4-5 minutes on each flight, which could represent an annual saving of US$10m. Chief Executive David Neeleman says this is important, because jet fuel in Brazil costs around 17% more than the global average, due to state-controlled pricing. Colonel Gustavo Oliveira of the Department of Airspace Control says “if we didn’t make this change now, we wouldn’t cope with the World Cup demand”.

While it is clear that airlines will do everything they can to get all visitors to all matches on time, since so much of their reputation will be on the line, few think they are going to make money in the process. LATAM’s Cueto points out that while there will be a spike in football visitors to Brazil, other types of travel are likely to decline. In particular, he expects to see a steep fall in business travel during the World Cup. He also points out that June-July is usually high season for outbound travel from Brazil to Europe and Miami: “Now, we don’t know if they will go to Miami or Europe, or if they will decide to stay in Brazil”. TAM’s chief executive Marco Antonio Bologna also said that lost revenue from business travel would not be offset by World Cup traffic. “During the Cup we’re expecting a slower flow, less demand”, he said.

  • “People coming to Brazil are going to be shocked, especially Americans, by how bad the airports are. There won’t be any catastrophic issues… but they will be chaotic and as ugly as heck” - Consultant Paul Irvine.

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