Brazil wants foreign carriers to operate domestic routes and has stepped up its recruiting, targeting three airlines including JetBlue.
I’ve written before the changing landscape of Brazil’s domestic commercial aviation market. Due to a recent change in Brazilian law, foreign airlines may now operate domestic flights within Brazil.
Speaking to Reuters at the recent ALTA Airline Leaders Forum, an industry conference in Brasilia, Brazil’s Civil Aviation Secretary Ronei Glanzmann said:
We are going to talk with JetBlue, we are going to talk with Volaris, a Mexican group … we are going to talk with Sky Airline, which is Chilean. These are conversations to introduce Brazil to them, they do not mean that the airlines are saying that they will come here.
Those meetings allegedly took place on Monday, though JetBlue did not respond to my request for a comment.
Thus far, only Spanish airline group Globalia, the parent company of Air Europa, has expressed firm plans to operate domestically in Brazil.
As I suggested when the law was first changed, the idea of European or U.S. airlines operating a network within Brazil seems less likely than tag flights from hubs that will accomplish the same purpose but not require a dedicated fleet. To that end, Glanzmann stressed the importance of recruiting international flights first:
We are working first with international routes, but we are already working so that those operations will become domestic operations in the Brazilian market.
The Fuel Deterrent
Brazil passes on a VAT of up to 25% on fuel to airlines operating domestically. That is undoubtedly a turn-off to many would-be entrants into the market. Efforts to exempt aviation fuel from VAT have thus far failed.
Brazil is a developing market with demand expected to increase rapidly in the years to come. Even so, I am still skeptical we will see a sizable influx of foreign carriers operating domestic flights. Even with the demise of Avianca Brasil, competition is still fairly fierce and the cut-throat, low-cost model of this competition does not provide an incentive for others to enter the market.