Brazil aviation faces turbulence after rapid ascent

After a decade of soaring growth as millions of Brazilians flew for the first time, Brazil's aviation industry has come back down to earth with a thud.

Experts warn the sector is facing higher taxes and fuel costs, inadequate infrastructure and a leveling-off of demand.

"2012 can be seen as the worst year for commercial civil aviation," said Paulo Kakinoff, president of Gol, the country's second biggest airline.

"This is due to a series of factors: a nearly 60 percent hike in fuel costs, the 10 percent depreciation of the real in relation to the dollar, higher taxes and new taxes."

Fuel represents 45 percent of the airline's expenses, he said.

The national airport operator, Infraero, has slapped a 150 percent hike on its rates, which had previously not changed since 2005.

With accumulated losses of $500 million up to September, Gol was forced to cut costs, with fever services and greater plane occupancy rates, a strategy pursued by other companies.

Late last month, Gol announced it was shutting down its Webjet low-cost unit and laying off 850 employees. But this week, a judge ordered the airline to take them back.

Brazil's top airline TAM, which merged with its Chilean counterpart LAN earlier this year to become Latin America's biggest airline, was also forced to cut costs.

TAM has yet to release its latest results but in the first quarter its earnings had slumped 21.7 percent over the same period of last year.

"In 2012, we spent a lot because of poor infrastructure, higher fuel prices and new taxes," said Gianfranco Beting, a spokesman for the Azul airline, which operates new routes with smaller aircraft.

According to industry data, the top five airlines are TAM, with 41.1 percent market share, Gol with 33.9, Azul with 9.35, Trip with 4.53 and Avianca Brasil at 5.95 percent.

Azul merged with Trip and Avianca earlier this year.

Although demand in this continent-sized country of 194 million people has stabilized, experts say the potential for further growth remains huge.

In 2002, 33 million air tickets were sold, a figure which nearly trebled to 86 million last year.

"In Brazil, each person makes 0.4 trips a year. In more mature markets, the average rate is 2.7. We have a huge potential," insisted Adalberto Febeliano, of the Brazilian Airline Association.

But he said he expected demand to remain stable in 2013 coupled with a reduction in supply to maintain profit.

His group is pressing the government for lower taxes and lower fuel costs.

Most of Brazil's 70 airports are congested or in urgent need of an upgrade as the country prepares to host the 2014 World Cup and the 2016 Summer Olympics in Rio.

The Miami-based Latin American and Caribbean Air Transport Association has expressed concern.

"The Brazilian market will continue to grow but we are concerned about the infrastructure, which has not been planned with this development in mind," it noted, lambasting the country's "lack of competitiveness."

President Dilma Rousseff slowly began privatizing some airports last year, starting with two in commercial hub Sao Paulo and one in the capital Brasilia.

Next year, she plans to grant concessions for the airports in Rio and Belo Horizonte to the private sector. Last week, she announced the construction of 800 regional airports across the country.

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