RIO DE JANEIRO, BRAZIL – The second wave of Covid-19, with Brazil breaking new daily records in the pandemic, has frustrated any attempt by the airline industry to return to normality. Since February, airlines operating in the country have been revising their seat offer downward.
LATAM plans to operate this month with only 190 flights per day in Brazil – 345 were estimated for March. Gol plans 185 daily takeoffs – 245 in March. Even Azul, which has maintained more routes, plans to run about 450 daily flights in April – the previous estimate was 600.
Until Friday, Brazil’s domestic air network this month corresponded to 36.8% of flight supply recorded in early March 2020, before social isolation measures, according to a survey by the Brazilian Association of Airline Companies (ABEAR). Currently, national airlines record an average of 882 daily departures, the lowest since September last year, when there were 864 takeoffs.
The data shows a worsening scenario since the previous survey, for the first five days of April, with a daily average of 960 flights. It is the third consecutive month of shrinkage in the network.
Gol, Brazil’s largest airline, plans 185 take-offs per day for April. In March, there were 245 daily flights, a 23% drop compared to February. “The company temporarily suspended its own service to nine cities, which will be partially resumed in May,” the company reported. For May, it plans 234 daily takeoffs – which was 635 in the same month in 2019, when there was no pandemic.
Last month, Gol had signaled that April would be difficult, by inviting its customers to reschedule tickets. In March, the occupancy rate stood at 71.8%, a high percentage when analyzing the global indicator (around 64% in February, according to data from the International Air Transport Association, IATA), but low for the company’s average, which used to fly in the pandemic with occupancy closer to 80%.
With the crisis, LATAM’s estimate is to operate up to 190 daily flights in April within Brazil. The number represents a pessimistic turn in the company’s projections. Its last published estimate, on March 12th, forecast 345 domestic flights per day – almost double what it should operate in April. The international route is still stuck. The company intends to operate 16% of its international capacity here, the same level as in March.
Azul expects to operate between 420 and 450 daily flights in April. In early March, the airline’s CEO John Rodgerson said the company was forced to review its strategy due to the second wave of Covid-19. At the time, the estimate was to operate about 600 flights per day in March and April.
Despite the crisis, Azul has maintained the highest number of flights in the country. In a conversation last Wednesday with Goldman Sachs’ analyst team, Azul executives said that the resilience in demand comes mainly from the greater diversification of its routes, not as limited to the Rio-SP and SP-Brasilia hubs, which were most affected during the second wave of Covid-19.
Itaú BBA’s capital goods and transportation analyst Thais Cascello pointed out that Azul’s strategy of putting in more capacity could pose a risk should the scenario worsen further. “Gol has been doing it little by little,” the analyst said.
On the other hand, Gol would have an opportunity to grow in the market due to the shrinking of LATAM, which filed for U.S. bankruptcy protection. “Pre-crisis, the overlap of Gol and LATAM routes was 90%,” she said.
The estimate is for an increase in capacity with more strength only in 2022. “We believe that both companies [Gol and Azul] will have to access the capital markets once again,” she said.
LATAM filed for U.S. bankruptcy protection and raised US$2.4 billion with shareholders and creditors. Gol priced last year a private placement of senior debt in the principal amount of US$200 million.
Azul raised R$1.7 billion in the fourth quarter last year through an issue of convertible debentures, with Knighthead Capital and Certares Management as anchor investors.
The investors have committed to submit an order for an additional US$100 million in case Azul decides to launch a new public offering. The company has until October to make this decision.
Demand in the Brazilian market exposes the country’s mismatch with regions of the world where vaccination has been progressing faster. Last week, American Airlines said it is preparing to operate a near normal schedule during the summer in the Northern hemisphere (mid-year).
Also American carrier Delta pointed out in its first-quarter balance that its operations began generating positive cash flow again in March for the first time in a year, and signaled that the worst of the pandemic is behind us.
Qantas, Australia’s largest airline, projected that domestic capacity in the second quarter should reach 90% of pre-covid level, supported by the resumption of tourism and corporate demand in a country which has avoided widespread contamination by Covid-19 by shutting itself off from the outside world.
Source: Valor