GOL and Azul paint a more optimistic outlook for Brazil with ‘business friendly’ president in office

Two of Brazil’s largest airlines are optimistic about the future now that the uncertainty surrounding the recent presidential elections are over.


Summary:

  • Brazilian carrier Azul Airlines and GOL have offered a more optimistic industry outlook now uncertainty surrounding the recent presidential elections is over;
  • Brazil’s far right president-elect Jair Bolsonaro was a controversial candidate, but he is widely viewed as business friendly;
  • Brazil’s Central Bank has reduced a growth forecast for 2018 to +1.4% but expects it to accelerate to 2.4% in 2019.

Brazil’s far right president-elect Jair Bolsonaro was a controversial candidate, but he is widely viewed as business friendly; the recently concluded election removes a level of uncertainty for airlines operating in Latin America’s largest aviation market.

The chairman of Brazil’s third largest airline Azul, David Neeleman, recently declared the airline is “relieved that the Brazilian elections are finally over, and that the micro environment in Brazil is more stable”.  Reuters has recently reported that Brazil’s Central Bank expects growth to accelerate in 2019. The news outlet stated the bank expects growth of 2.4% in 2019, but has refined estimates for 2018 to 1.4% growth versus a previous forecast of an increase of 1.6%.

“We are very optimistic with the new administration; they seem to be taking all right steps to promote economic development of the country.” Mr Neeleman concluded.

Azul’s management has recently highlighted that during the last decade, Brazil’s aviation industry has doubled in size, but the average GDP growth has only been 1.5%. If the country’s GDP starts growing at a rate of 2% to 4%, there is a “lot of potential we see here”.

CHART – The Brazilian aviation system returned to capacity growth in 2017, albeit at a modest 0.5% rate. It will grow at a decade high rate of around 4.6% this year, but seat levels remain significantly down on those recorded in the first half of the 2010sSource: CAPA – Centre for Aviation and OAG

Executives at the country’s largest domestic airline GOL Linhas Aereas recently stated that 2017 had been the first year of economic growth after six years of slowdown, contraction and a recession.

“We’re all feeling this out here in Brazil in a variety of sectors, feeling our way out on the other side of this election cycle, and how we address the challenges of the demand cycle as opposed to a contraction cycle”, said GOL CFO Richard Lark.

Speaking on its 3Q2018 financial results call at the beginning of the month, the airline’s CEO Paulo Kakinoff discussed GOL’s expectation for demand following the result of the Brazilian election. He said: “We expect that the outcome of the elections will have a positive impact on business and consumer confidence.”

“More than 65% of our clients travel for business reasons, and we believe that eliminating the political uncertainty will spur an increase in corporate activity in general. The appreciation of the Real should also help in the increase of consumer purchasing power for air travel.” he added.

However, IATA has warned that against a fragile economic backdrop and ahead of the (recent) election, businesses confidence remained subdued in Brazil. Across the wider region RPK growth ticked down for both North and Latin American carriers in Aug-2018 to 4.6% & 4.4% year-on-year, respectively. Its data shows that only African airlines are showing softer year-on-year growth in passenger volumes at present.