The world’s been paying attention to the mega projects that are under way in Brazil as part of the nation’s latest economic expansion and its preparations for the 2014 World Cup and 2016 Olympics. Monstrous stadiums, a bullet train between Rio and São Paulo, super highways, new deep sea oil rigs, and of course, huge seaport and airport expansions all are in the works. The latter has been focused primarily on the Brazilian gateway airports and hubs, which amounts to roughly eight airports. But an announcement in mid-December by President Dilma Rousseff has made it official: Brazil’s Government will build 800 regional airports.
Brasilia is clear on the importance of boosting both internal commercial aviation and general aviation. One of the goals is to boost the existence of small- to medium-sized airlines as well as general aviation and private aircraft ownership. Any city with a population nearing at or around 100,000 needs an airport within a radius of 60 kilometers, according to Rousseff.
Eight airport hubs handle about 90 percent of the country’s passenger and cargo load:
- São Paulo (with 3 airports, including Guarulhos, Congongas and Viracopos)
- Rio de Janeiro (with 2 airports, Galeão and Santos Dumont)
- Belo Horizonte
- Porto Alegre
- Brasilia.
The remaining 10 percent of the country’s air traffic is spread among 136 regional airports.
We Are Going To Build 70 – Why Not Build 800?
The original goal was to build 70 regional airports by 2015 and bring the national total just slightly above 200. There was a very clear emphasis on the parallel development of Airport Cities, more commonly referred to as “Aeroportos-Industriais” ever since a 2002 legislative act gave a legal framework for providing economic and fiscal incentives for businesses setting up shop at these airport industrial parks, a law that clearly paved the way for today’s highly successful Confins Airport City in Belo Horizonte. But the Brazilians have decided to raise the stakes to 1,000 total airports within a decade. The goal of 800 regional airports is ambitious, but if anyone can do it, Brazil can. Already the taxation on aviation at the major hubs generates enough income to cover the investment costs.
Comparing Brazilian Aviation to the United States
Like the US, Brazil has a dynamic, competitive and at times unstable and unpredictable commercial aviation sector, with multiple carriers competing for passengers’ business, huge airline successes and busts in the last few decades and consolidation followed by resurgence in the market. Just as Eastern, Pan Am, TWA and other carriers suddenly ceased to exist, Brazil has seen some of its classic legacy airline brand names disappear overnight, including Vasp, Varig and even TAM, which last year was absorbed by LAN Airlines of Chile, to form LATAM, at the time of the transaction forming the world’s largest airline by market capitalization (LATAM’s market cap would reach $13 billion, followed by Air China at $10.7 billion, Delta at $9.4 billion, Singapore Airlines at $9.3 billion and United Continental at $8 billion, according to Standard & Poor’s).
Other similarities include each country having its own manufacturing bases. What Boeing is to the US, Embraer is to Brazil, today the de facto third most important manufacturer of commercial jets.
If You Build it, They Will Come – Only if You reduce red tape
More than build airports, Brazil has an opportunity that is even greater, which is to change the way lawsuits and red tape hamper aviation potential. Even at a whopping 1,000 regional airports, Brazil will still be about 9,000 airports shy of the US total. And if 90 percent of air traffic is already concentrated in the mega hubs, Brazil needs to think about how it can guarantee that these thousand new regional airports will have enough movement to pay for the effort and upkeep. The president is on the right track – she wants to foster small and medium airlines as well as general aviation. But that was the same vision the US had during the ’50s and ’60s economic growth period, when most airports were built on the promise of increases in air traffic, direct small city to small city flights and private aircraft ownership. What ended up happening is a vicious cycle of lawsuits, insurance and regulation, which has had a snowball effect to a point where private and small-scale aviation has become unaffordable.
In a vicious cycle like this, frivolous lawsuits against airlines or airplane manufacturers lead to higher-liability insurance premiums, which in turn lead to red tape from regulators, who overspend on increased, unnecessary and expensive oversight and later tax it back to the aviation community. It is very hard in such an entanglement to single out direct cause and effects, but it is believed that the price of aircraft, and the expenses associated with operating them is at the very least double what it should be. This effectively prices out an entire potential market of consumers and users of aviation services.
The Case of JetBlue and Azul
Whether it’s eight, 80 or 800 airports, Brazil is poised to grow its aviation sector. If you plant a seed today and invest in this sector in Brazil, you can count on a positive return in the years to come. A living example of this is JetBlue founder David Neeleman, ousted in 2007 by the board from the company he founded. A year later, in 2008, he launched Azul in Brazil, and it’s a resounding success. Neeleman started the company with a firm order for 36 Embraer 195 airplanes and began serving point to point routes to secondary cities once only accessible via connections. In three years, Azul had catapulted to just under 10-percent market share. Come mid-2012, Azul announces a merger with TRIP, forming a company with a combined market share of 15 percent, 120 planes, 830 daily flights, over US$2 billion in revenue and 9,000 employees. It took Neeleman less than half of the time in Brazil to attain an equivalent of two thirds of the size JetBlue has today in the United States (13 years after its founding, Jetblue has 180 planes). US-based participants in the aviation ecosystem, from small aircraft manufactures, to suppliers and even airport builders, should consider very seriously setting up an operation in Brazil and being a part of this growth wave.
Estuardo Robles is an international business developer, entrepreneur and economic development trainer and is founder of The Americas IT Business & Investors Forum (www.americasitforum.com). He is based in Austin, Texas.