Gol Airlines Urges Brazil’s Antitrust Agency to Sanction Competitors Azul and LATAM

RIO DE JANEIRO, BRAZIL – After the fight that opposed Azul to LATAM and Gol in 2019, over distribution of bankrupt Avianca Brasil’s assets, a new dispute in the airline sector allies Azul and LATAM against Gol.

Last week, Gol urged the Administrative Council for Economic Defense (CADE), Brazil’s Antitrust agency, to analyze and impose sanctions on its two competitors over a codesharing operation that, according to Gol, could result in anti-competitive and harmful consumer impacts.

The operation involves the shared operation of five routes. Up to October, LATAM and Azul were separately operating flights between Belo Horizonte and Guarulhos, Belo Horizonte and São Paulo, Guarulhos and Porto Alegre, Brasília and Recife, and Rio de Janeiro and Vitória.

However, two months ago, the carriers announced to CADE that they would begin to operate these flights in partnership, which implies that one can complete a flight and start selling tickets for the other’s and receive a commission for this. This is a way the companies found to cut costs, while not completely losing revenue and increasing the number of passengers per flight and boosting profits.

In the petition filed by Gol last week, the company states that this change in operation by LATAM and Azul may represent a market concentration. “What is actually happening is a relevant concentration in terms of operating capacity on these routes, which enables the airlines involved to effectively exercise their market power, to the detriment of Gol (the parties’ only competitor on these routes) and, above all, to the airline service users,” says the complaint.

According to the complaint, the route between Guarulhos and Belo Horizonte would be the one with the greatest concentration, with Azul and LATAM taking 77% of seats in 2021, compared to 62% in the fourth quarter last year. For the route between Brasília and Recife, it would grow from 68% to 75%.

The agreement between Azul and LATAM increases sales potential for the companies, leaving Gol behind in the race for the post-Covid rebound. In its petition, Gol also complains that these five routes being shared are among the most important for the corporate segment, one of the most significant for the airline industry, but also one with lower demand now and that should take longer to rebound. In the corporate segment, tickets are usually sold with less advance notice and, therefore, have higher prices.

Codesharing Agreement

Azul and LATAM announced last June that they had signed a codeshare agreement, through which they would operate 29 routes in partnership, and could expand it to 64. However, at the time, no overlapping routes were included, i.e., they were operated separately by the carriers.

With the agreement announced six months ago, a passenger travelling a two-track flight could take the first on a LATAM flight and the second with Azul. The partnership, therefore, increases destinations and frequencies offered by both airlines. The codeshare on overlapping routes has only now emerged, in late October.

André Castellini, a Bain & Company partner and airline specialist, however, does not perceive any damage to consumers for the time being. In his opinion, given the extent of the crisis and the fact that demand today stands between 50% and 60% of what would be typical, companies could consider certain routes financially unfeasible and completely abandon them, which would imply a reduction in supply and a rise in prices.

“With codeshare, each company (LATAM and Azul) may sell tickets until the plane is full. They ultimately compete with each other in marketing and have the advantage of maintaining more flights on a particular route than they would have without codeshare.”

LATAM reported in a note that “since the start of the codeshare agreement implementation it has kept in contact and has been updating CADE.” Azul reported that it is also “constantly in contact with CADE and is absolutely transparent, reporting all routes implemented in its agreement.” It also stated to believe that the agreement is “very beneficial to consumers”. Gol did not choose to comment on the matter.

CADE stated that it will not comment on proceedings under consideration by the authority.

Source: Estadão Conteúdo

This article was produced by The Rio Times’ automated newsroom system. How we use AI · Report an error