Let’s shift from the Middle East and head down to Brazil, shall we? Big news came across the wires when Azul and TRIP announced they would merge to form the third largest airline in Brazil with just under 15 percent of the market. On paper, it looks great. But this is a risky move in a country where things have a habit of changing very quickly in the airline world.
In 1998, I went on vacation to Brazil. When we looked at our best options for travel around the country, the three airlines that came to mind were Varig, VASP, and Transbrasil. None of those fly planes today. Less than 15 years later, the big three are TAM, Gol, and now Azul/TRIP. This underscores how quickly things can change in this country.
(Very) Little History
Varig was the flag carrier with a long, proud history. After others were allowed to begin competing, it failed like many others. VASP was also an airline with a long history, but it was a domestic carrier until later years when it reached into the international world. Again, it failed miserably. Last was relatively young upstart Transbrasil which was a smaller player that grew quickly. It grew itself right into the grave.
What resulted from all these failures was a big shift in the type of transportation offered in the country. TAM became the de facto flag carrier. It eagerly gobbled up opportunities to expand through the 1990s and 2000s as the big guys floundered. Today, it is the standard-bearer and really the only legacy airline in Brazil. It has designs on the entire continent, something that’s easily achievable as part of its nearly-completed merger with LAN.
Gol has a very different past. Gol didn’t even start flying until 2001 when it brought the idea of a low cost carrier to the country. It has grown very quickly since that time, partially internally but also through acquisition. It actually bought some of the remains of Varig, but you won’t see airplanes flying around with the Varig name anymore. It also bought growing competitor Webjet. While Gol is a low cost carrier, it has adopted more of a hybrid model that many other low cost carriers have adopted as they grow up. Today, Delta owns a piece of the airline and the two have increased cooperation.
The Heart of the Matter
That, finally, brings us to TRIP and Azul. TRIP started on the small side with props on thinner routes. Since TRIP was founded in 1998, it has grown to have a fleet of just over 50 airplanes. Though it is firmly an ATR turboprop operator, it grew into operating Embraer jets in the 70 to 90 seat aircraft category. TRIP serves small destinations all across Brazil and was considered strategically important enough that TAM tried to buy the airline at one point. A codeshare still exists between the two.
Azul was something different. After JetBlue ousted CEO David Neeleman, he went south to Brazil to create a new version of JetBlue. He even named it Azul, or “Blue” in Portuguese. Azul went in the opposite direction of TRIP. It started primarily with Embraer 190 and 195 jets and recently decided to go for smaller markets with, you guessed it, ATR turboprops. It now also has about 50 airplanes total. The airline’s main base of operations is at Viracopos, an airport about 60 miles northwest of Sao Paulo. But it has grown to have a fairly extensive network around the country.
On paper, TRIP and Azul look like a match made in heaven. They operate similar fleets, have relatively low overlap, and have an incredible presence in smaller cities around Brazil.
So why do I say this is risky?
Culture, Culture, Culture
If you think about what David Neeleman tried to do at JetBlue, it was to create an overwhelming, positive culture that would make the airline great. He wanted to do the same thing at Azul. If you’re really focused on culture, probably the most harmful thing you can do is to merge with another airline. Now, Azul is larger than TRIP, so maybe it will be able to absorb those employees into its culture, but it’s still a risk.
But does culture matter in this case? It probably depends on who you ask.
Azul’s mission has been to open up air travel to those groups in the middle class, folks who couldn’t afford it and had to travel by ground. So far, Azul has done that well. With TRIP, it can expand its reach further into smaller cities and reach those very same people. If the culture suffers, will that make a difference? I’m not sure. It’s not like there are many others trying to do the same thing.
The only other airline in Brazil with more than a blip of market share is Avianca Brazil, an airline that is closely tied with Avianca/TACA, the giant of Central and Northern South America. That airline would have a strategy more similar to TAM than anything else. So Azul has an opportunity to try to really corner the market here knowing that if there are culture hiccups, it should be able to survive.
That being said, it’s amazing how quickly things have changed in Brazil. It can always change again just as quickly, and if Azul and TRIP aren’t careful, they could end up in the graveyard like many others. As I said, this merger looks great on paper, and its success depends on how well it’s implemented.
[CAPA has a good analysis for those who are interested.]
