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Brazil, the world’s third-largest growing airline market, is facing severe turmoil. With the real weakening and costs dollarized, airlines are struggling to stay in the skies. Rumors of mergers between giants such as Azul and Gol are fueling speculation, while poor infrastructure is slowing progress.
The aviation sector in Brazil is experiencing a paradox. The country is the third largest growth market in the aviation sector, behind only India and China, according to recent data from the International Air Transport Association (IATA).
However, this expansion faces significant barriers caused by the devaluation of the real against the dollar.
The exchange rate imbalance directly impacts the operating costs of airlines, which have a large part of their expenses denominated in the US currency.
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In July 2024, the domestic market transported 8,5 million passengers, an increase of 1% compared to the same period in 2023.
The international segment, in turn, grew 17% in the same period, according to data from ANAC (National Civil Aviation Agency).
These figures show that demand for air travel continues at a rapid pace, but they also highlight the challenges posed by an adverse economic scenario.
Impacts of the rise of the dollar
Dollarized costs: the Achilles heel of airlines
The rise in the dollar makes a series of essential items for operations more expensive aerial, such as fuel, aircraft leasing, maintenance and insurance.
According to Willie Walsh, IATA's director general, “no matter how efficient an airline's management is, the devaluation of the real has a disproportionate impact on operating costs.”
The statement was made during a recent event in Geneva, where Walsh highlighted that many Brazilian companies are unable to fully transfer these costs to the price of tickets.
In Brazil, around 60% of airline costs are dollarized, while revenues are mostly in reais.
This discrepancy makes the market highly vulnerable to currency fluctuations. “With the exception of US carriers, almost all global airlines are facing financial difficulties, but emerging markets are feeling the pinch even more,” Walsh adds.
Sustainable growth or bubble?
Post-pandemic recovery brings new challenges
Since the end of COVID-19 pandemic restrictions, the Brazilian aviation sector has shown a remarkable recovery.
Data from ANAC shows that passenger levels transported in 2024 are equivalent to or higher than those recorded before the pandemic. The international market stood out with an increase of 4,3% compared to 2019.
However, experts warn of the risks of a bubble in the sector. The increase in demand for travel is accompanied by inflationary pressures and rising costs.
Despite advances such as the introduction of more efficient aircraft and bilateral agreements that have expanded international connectivity, companies are struggling to balance their accounts.
Mergers and acquisitions: solution or problem?
Azul and Gol: a possible marriage of giants
Recently, rumors about a merger between Azul and Gol have gained momentum again. Although IATA does not see this move as harmful to competition, many analysts question the impact on consumers and small market players.
“Even in a consolidation scenario, there is always room for new companies to enter the market,” argues Walsh.
On the other hand, mergers can bring benefits, such as cost reduction and greater operational efficiency. The entry of new players, such as low-cost airlines, also helps maintain competitiveness and improve the consumer experience.
Infrastructure: an obstacle to growth
Brazilian airports need modernization
Another challenge faced by the sector is airport infrastructure. Despite advances in concessions and private investment, many airports still lack significant improvements in capacity and efficiency.
According to consultancy firm Rayol, the lack of modern infrastructure limits the growth potential of the Brazilian aviation market.
Cargo movement is also facing difficulties. In July 2024, the market processed 40,7 thousand tons of domestic cargo and 75,3 thousand tons of international cargo. Despite the growth compared to 2023, experts point out that Brazil still lags behind other global markets in terms of logistics efficiency.
Future of aviation in Brazil
Solutions for a more competitive market
To overcome these challenges, Brazil will need to adopt a multifaceted approach. This includes policies that mitigate the impact of the strong dollar and incentives to modernize its fleet and infrastructure.
The expansion of agreements International and the debureaucratization of the sector are also fundamental.
Companies like Embraer play a crucial role in this scenario. The Brazilian manufacturer recently announced partnerships to develop more sustainable aircraft, in line with the global trend towards decarbonization.
With the growth of the aviation sector in Brazil, but the challenges imposed by the high dollar, what solutions do you believe can be implemented to balance the market?
