Video of the week – Azul works to build a sustainable competitive advantage in Brazil, but it is a competitive landscape

It has been an eventful 2019 for Brazil’s aviation market since Avianca Brasil ceased operations and Brazil’s largest airlines began jostling for some of the defunct airline’s more attractive assets. And as the shakeout in Brazil’s domestic market continues, Brazil’s economy is facing some headwinds after its growth forecast for 2019 has been cut, and general overall recession concerns are rising for countries worldwide.

Azul Brazilian Airlines joined other airlines in working to obtain Avianca Brasil’s slots (particularly at São Paulo Congonhas airport) and now, armed with new slots, the airline is launching flights on the key Rio de Janeiro business route. Its service on the route will pale in comparison to those of GOL and LATAM Airlines Brazil, but breaking into that market is key for Azul’s domestic evolution.

At the recent Latin America Aviation and LCCs Summit in Curaçao, Abhi Shah, chief revenue officer, Azul Brazilian Airlines highlighted that the airline launched operations in Brazil with the aim to “explore what hasn’t been explored yet” and “build a different network”.

He said Brazil is a very big and very diverse market with few alternative modes of transport and at the time Azul commenced operations was “a market that should fly more”. Azul entered the market to access new demand, create services that did not previously exist and offer a “hybrid value proposition” that was “unique in the market”.

It has proved a success, even though Mr Shah acknowledges it is “really hard” for new airlines entering the Brazilian market to create cost benefits and there are few secondary and tertiary markets for new airlines to target. Mr Shah said it is “really hard to create an airline that has significant cost advantage”.

Azul is the only carrier on 72% of its routes as of 2Q2019, up from 56% in 2012. Mr Shah said opening routes without other carriers is the first step in building a “sustainable advantage for the future” through a business model that is resilient over the long term. Mr Shah stated Azul is stimulating the market with new services rather than low fares, which is “a more sustainable way to grow the market”. Mr Shah said the strategy of creating connectivity and services that did not exist before is “very defensible” as it is hard for other airlines to “eat into this advantage”.

Mr Shah outlined in more detail how Azul is developing this competitive sustainable strategy in a keynote presentation at the CAPA Latin America Aviation and LCCs Summit…

… while he later shared some of the lessons learned for newer LCCs in the region in a one-to-one on stage interview with CAPA – Centre for Aviation adviser John Thomas…

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