By
ALASTAIR STEWART
SAO PAULO —
Brazil's leading airline, TAM SA, expects the
country's domestic aviation market to grow by up
to 12% next year as incomes and employment
levels continue to rise in Latin America's
largest economy and new promotions attract
first-time, lower-income fliers.
"Economists are
forecasting the economy will grow around 5% in
2010. We see the aviation market expanding
double that, maybe two and a half times that,"
said Líbano Barroso, who on Monday was confirmed
as TAM's chief executive officer after having
served as acting CEO since October.
A TAM
jetliner taxis to the terminal in Rio de
Janeiro in August. TAM expects strong
growth in Brazil in 2010.
Attracting
first-time fliers with easy payment options is
one of the keys to raising growth levels in the
$6.5 billion Brazilian air travel market, Mr.
Barroso said in an interview.
Brazil's domestic
air traffic has nearly doubled since 2003,
growing between 8% and 22% a year through 2008.
This year, even though airlines had expected the
economic slowdown to curtail demand, the latest
data indicate passenger traffic grew 15%.
Demand has been
bolstered this year by the expansion of smaller
airlines, led by Azul Linhas Aéreas Brasileiras,
which offered alternative routes at lower
prices, prompting the main players TAM and Gol
Linhas Aéreas Inteligentes to react with price
cuts and expanded service. But the bedrock was
the strength of internal demand throughout the
economic slowdown, which was driven by rising
working-class and middle-class salaries and
spending.
TAM and the other
airlines are now seeking to tap deeper into this
up-and-coming consumer group by offering tickets
in installments.
Earlier this
month, TAM announced agreements with banks Itau
Unibanco and Banco do Brasil to offer payment
plans on tickets. Account holders can obtain
tickets by making a small down payment and then
making installment payments for up to four years
after flying.
The goal is to
make it flying an alternative to taking the
bus—the most common way average Brazilians
travel. Since the 1940s, Brazil has experienced
mass migration from the rural northeast to
far-off urban centers such as Sao Paulo and Rio
de Janeiro in the southeast. As a result, at
Christmas and other holidays it is common for
workers to travel two or three days by bus to
visit relatives.
Although plane
tickets are still more expensive than bus fares,
they offer value in time saved. The average
price for a ticket for the 1,680-mile flight
between Sao Paulo and Recife, for example, is
between $120 and $200; the average salary in
Brazil is about $770 a month.
"The fact that
payments for the tickets are within people's
monthly budget acts as a great stimulus," said
Mr. Barroso.
Gol was the first
to adopt the strategy of easy payments about
four years ago. Its program now has 1.8 million
members and its popularity has forced other
airlines to follow suit.
Meanwhile,
airlines are looking to develop alternative
routes to expand their business, while finding
ways to manage the crush at Brazil's hub
airports in Sao Paulo, Rio de Janeiro and
Brasilia.
TAM announced last
week that it had bought ailing small regional
operator Pantanal in a deal valued at 13 million
Brazilian reais ($7.3 million). Pantanal
operates three turboprops and has just 0.2% of
the domestic market. But it holds a valuable
asset: 196 slots at Congonhas in Sao Paulo,
Brazil's busiest domestic airport.
Congonhas'
proximity to Sao Paulo's business centers makes
it the preferred destination for executives,
which make up the majority of passengers on
local flights. But heavy restrictions on
takeoffs and landings at Congonhas because of a
short runway and its built-up environs mean that
slots are at a premium.
"We are going to beef up
Pantanal in order to meet demand for smaller
destinations," said Mr. Barroso, although he
didn't name cities targeted for expansion.
In recent months
the price war with Gol, Azul and other
competitors has cooled and profit margins have
improved. TAM reported third-quarter profit of
348 million reals, recovering from a loss of
663.6 million reals in the quarter last year.
Separately Monday,
TAM said it has extended its partnership with
the Argentine unit of Chile's
LAN Airlines SA. The agreement allows TAM to
sell seats on LAN Argentina's domestic flights,
and the Argentine airline to do the same for
seats on TAM domestic flights in Brazil.
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