Shares of Brazilian airlines rose on Tuesday, as investors were relieved that a government deal to reduce ticket prices was not as heavy-handed as some expected, amid President Luiz Inácio Lula da Silva’s campaign to make airline tickets more affordable.
Azul rose around 4%, while Gol rose more than 2%, both among the main risers of the Ibovespa, which rose 0.5%.
On Monday the two companies agreed with the Lula government to limit the prices of millions of domestic tickets.
“Our view is that the market expected something worse,” analysts at Genial Investimentos said in a note to clients, adding that capped tariffs are not expected to “significantly” reduce yields through 2024, a price indicator for the sector.
However, the Ministry of Ports and Airports classified the pricing agreement as the “first step” of a tariff reduction program, and Lula considered the possibility of a bill to address the costs of air travel, which are at the highest levels of the last 14 years.
“This is something that the government is going to have to deal with, the Senate is going to have to deal with it so we can try to find a solution,” the president said at an event Monday evening. “There is no explanation for the price of airline tickets in this country.”
Airlines say the local market reflects a global trend, with sustained demand for air travel following the pandemic and supply chain issues impacting the ability of plane makers to supply new planes that would increase capacity.
“Every week I get called to Brasilia to get beat up about the price of the ticket,” Azul chief executive John Rodgerson told reporters last week. “But the ticket price is based on the existing demand in the market. The market has a lot of demand right now, so the way to help it is to increase supply.”
In Monday’s deal with the government, Azul agreed to sell 10 million tickets for less than 800 reais next year. Gol will offer 15 million seats at less than 700 reais each and Latam has pledged to increase its flight offering in Brazil.
Industry observers are skeptical about how much this will change the country’s average airfare, currently around 750 reais, the highest since 2009, according to data from the National Civil Aviation Agency (Anac).
“Customer response to current fare levels remains positive, with no signs of slowing demand,” BTG Pactual analysts said in a note after hosting Azul management for a meeting, adding that the airline “does not anticipate major tariff adjustments”.
Both Azul and Gol last month reduced their outlook for the total places available this year.
Azul plans to add 19 new planes to its fleet next year, but acknowledges that plane makers around the world face major hurdles in supplying engines, which also increases maintenance costs for airlines.
Gol made a similar claim last week, blaming delayed deliveries of Boeing’s 737 MAX planes for limiting the airline’s growth and putting pressure on its maintenance team.
Source: Terra
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