Brazil’s air traffic growth back on track

After years of soaring air traffic growth in Brazil, airlines are tightening their seatbelts for a slowdown ahead. Passenger traffic expanded 24 per cent last year and 19 per cent in the first three quarters of 2011, but executives at the regional ALTA aviation forum this week speculated that growth may not even reach double digits next year. Some of the slowdown is out of airlines’ hands, as congested airports and higher fuel costs aggravate the effect of a cooling economy. But analysts say major carriers are also realizing they cannot sustain some of the cut-rate fares that have tempted a nation away from long bus rides and into the skies at an unprecedented pace. “There’s a part of that growth that doesn’t stick. It comes and goes, depending on prices ... with a little restriction, that demand disappears,” Eduardo Munhos, vice president of Latin American sales for planemaker Embraer, said in an interview with Reuters. He sees Brazil’s market growing as little as 6 per cent next year. More tepid growth is not a disaster for Brazil’s airlines, but it will help drive the next wave of consolidation in the industry as companies seek a stake in faster-growing secondary routes. And higher prices will test claims of a permanent shift in consumer habits among the swelling ranks of middle-class Brazilians. The more sober outlook could also mean the end of a bruising battle between the traditionally dominant TAM and rival Gol Linhas Aereas, which snatched the top spot in the domestic market for the first time this year. As long as passenger growth was booming, the rivals could turn profits even as they undercut each other’s prices for a bigger slice of a swelling pie, analysts say. But surging fuel prices and labor costs this year broke that cycle, contributing to year-to-date net losses for both carriers and wiping out half of Gol’s market capitalization so far this year. Neither airline acknowledges an explicit market share goal, but both have signaled a more cautious tack next year, paring back fleet plans and pointing to a recovery in ticket prices.