Brazil has always been a fascinating yet incredibly difficult market for airlines. The country is huge, but for years air travel was only for the wealthy. It has changed, but it is not a settled market by any means, as evidenced by the new plans for a blockbuster merger between Gol and Azul. Before talking about this combo, let’s take a trip back in time.
When I first visited Brazil in the late 1990s, the big three of Varig, Vasp, and Transbrasil were all fighting for dominance. None of them exist any longer.
The Changing of the Guard
Varig was the country’s long-time flag carrier, and it was a complete mess as you might expect. I remember once at a conference talking to someone from the airline who said it cost more to take a booking directly online than through a third party. There was no fixing that company, and it went away officially in 2008 after being in the throes of death for years. VASP was another long-time Brazilian carrier that failed in 2007. Transbrasil was the new kid on the block, dating back only to the 1950s. But it was the first to go in 2001.
How is it possible that a country’s three big airlines all fail in short order? Pressure came from the new kids in town. Throughout the 1990s, TAM had been slowly building its presence after consolidating smaller regionals and becoming more than just a small air taxi. It was 1997 when TAM ordered its first narrowbodies from Airbus. The airline became the biggest airline in Brazil in 2005, and by 2010 it merged with LAN to create the behemoth that we know today as LATAM.
While TAM was growing into the flag carrier role as a full-service airline, Gol had other plans. Gol started flying in 2001 as a hybrid, low-cost type of operator which has had a wobbly strategy over the years. At one point it wanted to be in an alliance. Then it aligned with Delta, selling a small stake to the airline. Now it’s aligned with American which itself now owns a small piece. It’s an all-737 operator that has the country’s most important markets well-covered.
The last player we need to talk about is Azul, started by JetBlue founder David Neeleman. Azul was built to serve markets others did not. Brazil was a young air travel market with huge potential, so Azul was all about stimulation in places that didn’t seem like viable markets previously. It started flying in 2008 and, as is always the case with a David Neeleman airline, it grew very fast. It just recently passed Gol as the second largest airline in Brazil flying everything from its original bread-and-butter Embraer 195 fleet all the way up to the A330neo for long-haul.
The Pandemic is Brutal for Brazil
During the pandemic, Brazilian carriers did not have the same access to funds that US carriers did, so they all were effectively bankrupt and scrambled to figure out a plan to stay alive. LATAM filed for Chapter 11 protection in the US in 2020, not wasting any time. Gol sold a majority of its shares to Abra Group (the parent of Avianca) in 2022, and that kept the airline going until early 2024 when it filed for bankruptcy itself. Azul didn’t have to file for bankruptcy since it was able to achieve an out-of-court restructuring of debt, but the situation has been dire at times.
With a head start coming out of the pandemic with a clean balance sheet, LATAM came out swinging and has really doubled-down on winning the Brazilian market. At São Paulo’s primary Guarulhos airport, LATAM and joint venture partner Delta now control more than half of the airport’s traffic. At close-in Congonhas for short flights, LATAM is above 40% which is very close to what Gol flies. LATAM also controls the country’s capital, Brasilia, with just over half the seats.
Departing Seats for Top Brazilian Airports – FY 2024
Data via Cirium
Gol, meanwhile, relies heavily on its presence as a foil to LATAM at all of those airports, but it is also the biggest airline at Rio’s Galeão. Azul is in a different world with most of its capacity in São Paulo flying from Viracopos (Campinas). After that, its next largest operations are at Belo Horizonte and Recife. It’s the places where the others don’t fly that matter most for Azul.
Merger Time
With Gol working on exiting bankruptcy, dealmaker Abra has a plan. It has announced that it wants to merge Gol with Azul. Funny enough, it seems Gol didn’t actually even know that was a plan when it was announced. There is nothing binding here at all, but if it does go through, it will create a new largest airline in Brazil, leapfrogging over LATAM.
As you can see from the chart above, this would not have a huge impact on overlap. The networks are actually quite complementary in that respect. But naturally this does reduce the country from having three main airlines to two, so it’s impossible to do this without reducing competition to some extent.
The real question is whether this is a three-airline kind of a country or a two-airline one. The competition review will certainly address that. One thing that is clear, however, is that it has never been a particularly stable airline market.
For Abra, this would be huge. It already owns the Colombian market and has solidified its position. It also controls all of Central America, save Panama. A big move into Brazil like this would make it significantly more relevant.
19 comments on “Abra Makes a Push for a Consolidated Brazil”
I live in London, so maybe I’m a little bit spoiled with all the competition that there is between airlines in Europe. However, for a large country like Brazil to end up with just 2 airlines, and for that airline to also control air travel in much of Central America and Colombia…. while Latam controls south America west of the Andes…. makes me think this is really not a healthy thing. Effectively, it would mean 2 airlines controlling a very high proportion of air travel south of Mexico with over 400 million people (the USA has about 340 milliion residents) . No, I don’t count Aerolineas Argentinas as serious competition. Yes, great for stockholders and employees, but unlikely to be good long term for any of these countries. A well-functioning air travel market is essential for a modern economy, and a duopoly is unlikely to provide that.
If the merger goes ahead, there is a 100% chance another airline will pop up to compete.
A market as populated as Brazil won’t be stuck with 2 airline duopoly forever.
I got curious and looked it up… Based on revenue passenger kilometers in 2023 (IATA data), the domestic air travel market in Brasil is one of the largest in the world (depending on metric & time period), after the US, China, & India, and just ahead of Japan. That makes Brasil a HUGE market.
When I compare the price of domestic Brazil flights for a similiar distance against those in the USA or the EU when booked a month ahead, it seems that Brazilian airlines are charging significantly higher prices. That’s with 3 airlines already competing. Long distance high-speed rail doesn’t really exist in Brazil, so that means airlines see even weaker competition. All of this is ringing alarm bells in my head around compeition and airlines being able to abuse their position with high fares.
In the last two columns on the graph, what’s the difference between “SDU” and “Rio/SDU”?
Kilroy – OH shoot, I thought I fixed that. Rio/SDU should be CWB (Curitiba). I guess it didn’t transfer over to the chart.
In your chart, you have one stack that says SDU and one that says Rio/SDU. What’s this difference, or is it mislabeled?
What is it about Brazil that makes it a difficult airline market?
My time to shine.
President Lula is a big fan of National Champions, meaning that yes an Azul/Gol merger has full government backing.
My personal concern is that Azul, which is very well run, will be taken over by a lower quality management team, who may make silly decisions Iike when Latam partnered with Delta.
Additionally, Abra Group should choose to align with AA, IAG, and Oneworld. Staying with AF-KLM or Star Alliance is a futile exercise.
Sorry, but if Azul is so well run, why is it a heartbeat away from bankruptcy and needs to merge with GOL in order to survive?
You explained it yourself. Azul has not gone bankrupt, while Gol and Latam have.
When the merger goes ahead, Azul will entirely avoid the need for bankruptcy at all. That’s called being smart.
Just so someone can yell GOL!!!!!!!!
It is really unlikely that the Brazilian government would allow one company to control 60% of the market. Arguing that Gol and Azul compete in different hubs misses the point that the purpose of the merger is to control all of those markets where there are 3 effective competitors now. Brazilian government officials are capable of seeing that allowing 60% or more of the capacity in dozens of medium to small markets will increase prices for those people even if Latam still controls São Paulo which is the business center not just of Brazil but also of S. America.
And the fact that Abra is a multi-national or proposed to be a multi-national airline group doesn’t make the combined Azul and Gol any more “Brazilian” than Latam is.
Add in that Gol and Latam have divided alliances/loyalties that are not aligned with the big 3 US carriers and it is very possible that there might not be a “clean” global alignment with Abra and Latam.
and given that there are 3 US megamergers and this merger would create just 2 Brazilian carriers, one of AA or UA is a big loser. Given that Azul has little value to a US carrier, UA is clearly rooting for consolidation while AA is not since Gol does have a decent presence in AA’s major Brazilian gateways.
This will be interesting to watch but I think some people might be disappointed if they expect another round of massive Brazilian airline consolidation.
Nice try.
President Lula loves his national champions. In fact, a Reuters article just came out saying the Brazilian government supports the merger.
I’m sorry that another airline will be slightly bigger than Delta Latam, but the merger is happening whether you like it or not.
first, Brazil has a governmental body responsible for antitrust and competition enforcement. While a few voices have expressed support for a merger, the appropriate government bodies that have to approve or deny the merger have not spoken. It won’t surprise anyone if Lula pushes something forward but Azul and Gol both engage in foreign transportation so other governments have to give their approval. Korean just spent years getting approval of multiple foreign governments and made concessions even though their own orchestrated the merger with Asiana.
second, no government can change the reality that a merger of Azul and Gol will raise fares for millions of Brazilians at least domestically and maybe internationally as well. You can’t concentrate any industry to two major players, one of which has a majority of the market and not expect prices to go up.
third, while Azul/Gol would gain larger shares at many airports, CF’s own facts show that Latam will still be the largest carrier in São Paulo which is the largest market and where the majority of the country’s international flights are to/from. You or anyone else can debate whether an Abra combination in Brasil can effectively compete when someone else is the largest carrier in the largest market in S. America but there is plenty of evidence from other airlines that Abra would still not generate yields on par w/ Latam, esp. in the international market if Abra can even break into it.
I appreciate your enthusiasm but there are many, many hurdles not just for Gol and Azul to merge as they currently exist but even more for them to be an effective competitor.
and finally, as much as you want to tout that Abra would be a national champion, it would be no more Brazilian than Latam is. Both are – or Abra will be if it succeeds with the merger – a multinational airline that might end up larger than Latam in Brazil but would still have to share the spotlight with other governments in S. and Central America.
This merger proposal is worth watching but it’s a tad early to pop the champagne.
In the international market, a combined Gol/Azul is likely to be a stronger competitor to Latam than they are separately, so I don’t really see other governments getting involved in the way that they did with Korean/Asiana, where the merger was going from two major carriers down to one, and where the Korean airlines held a much higher share of the international market than the Brazilian airlines do.
The other governments in the region have largely accepted the idea that South America is (more or less) a single market, at least between South American nations. The EU, the government most likely to get involved in reviewing these mergers, won’t really care because there’s no real overlap – the only destination served by both Gol and Azul is Curacao, which is not part of the EU or the Single Market, and the merger is, if anything, likely to result in Gol/Azul competing more with Latam to Europe. Same for the United States.
As for domestic antitrust concerns, unless there are significant barriers to entry that would prevent new entrants (start-ups or a new subsidiary of a foreign airline that would be allowed under Brazilian law), the government of the day will largely set the tone by choosing whether or not to sue to block the merger, as is the case in almost every country.
Fares may go up in some domestic markets, but absent barriers to entry this in and of itself wouldn’t be enough to completely block the merger, although it could lead to short-term concessions. Opponents of the merger should consider raising the issue of used aircraft availability (at least for current models with competitive performance) and long delivery lead times as a barrier to new entrants.
If the Brazilian states have the ability to sue to block the merger, that could be a major obstacle, but unless someone can get this into court without the national government’s participation, it’s likely to get through.
Avianca has many lifes, more than 7. Looks like the brand does the trick, plus the Colombia Market and location. Avianca/ABRA is succeeding at competing in the ULCC while also doing it in the front of the cabin, GOL will piggyback from that experience and feed Avianca Hubs, while Avianca feeds the GOL hubs to connect Brasil… this market and this size will make Avianca viable, and great for south america… in partnership with UNITED, vs. AA that has MIA as the capital of south America.
Jetsmart will jump to fill the Azul low cost market where available, and regional airlines continue to pop up in certain markets Azul and Gol leave.
Overall a win for south america… the profits or losses will still go to Ireland or the USA where the companies are based.
I can already see Cranky’s headline when the merger happens.
“ABRA Cadabra – Brazil Approves Merger of LATAM + Gol + Azul”
I like this a lot!