ANALYSIS: Avianca Brazil poised to capture bigger share at home

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Avianca Brazil looks set to become a bigger player in its home market, as it eyes an entry into the Star Alliance next year and is poised to place a new regional aircraft order in the coming months.

The airline will receive its first Airbus A350s in 2017, which could open up its network beyond Brazil.

Avianca Brazil was formerly known as OceanAir before it was rebranded in 2010. Sharing a moniker with Bogota-based Avianca has led many to believe it is part of that airline, but aside from having a common majority shareholder in the Synergy Group, the two carriers operate separately.

Synergy has indicated in recent months that Avianca Brazil, which flies to 17 destinations in Brazil, is ready to grow beyond its current status as the country's fourth largest airline.

German Efromovich, the owner of Synergy, said in November that he has no doubt Avianca Brazil will become part of Star in 2014. The Avianca group of airlines joined Star in 2012 but its membership excluded its sister carrier in Brazil, which has said it needs to update its IT systems to be part of a global airline alliance. While there have been indications that Avianca Brazil will be eventually brought into the Star family, Efromovich's remarks are the first to peg a timeline to this.

"I am positive it will happen," he told Flightglobal in November. "It will happen in the first quarter, or [at] the very latest, second quarter."

The airline needs to be ready for the alliance, he reiterated. "There is no doubt [that we will join Star]... The issue is that we must be running fast enough to join Star."

Avianca Brazil, in the meantime, is also sewing up the final details of a new regional aircraft order, which it aims to finalise in the next six to eight months. Efromovich's twin brother, Jose, runs the carrier and told Flightglobal the airline is in talks with Embraer and other airframers. While he declined to specify the number of aircraft the airline will order, reports have said Avianca Brazil could acquire as many as 30 new aircraft.

Both Bombardier and Superjet have said they were wooing an Avianca carrier for a regional aircraft order. The new aircraft will likely replace Avianca Brazil's Fokker 100s, of which it still operates 12 despite having said it plans to replace them with Airbus A318s. The carrier has 14 A318s in service, Flightglobal's Ascend Online database shows.

Avianca Brazil's regional aircraft order is linked to the Brazil government's plan to develop regional aviation in the country. While authorities have said they aim to improve the country's regional airports, airlines are still awaiting details from the government on how carriers will be incentivised to operate to these airports. TAM, the country's biggest carrier, is also studying a potential regional aircraft order.

Taking a step into the regional sphere in the Brazil market could elevate Avianca Brazil's market share. In the first ten months of this year, the carrier had a 6.5% share of capacity in the domestic Brazil market, up from 4.7% in the same period in 2012. It had a 7.1% share of domestic Brazil traffic from January to October 2013, statistics from Brazil's National Civil Aviation Agency (ANAC) show. This is up from 5.1% in the corresponding period in 2012.

Avianca Brazil posted an average load factor of 82% in the first ten months of 2013, the highest among all Brazilian airlines. In the same period in 2012, the airline logged an average load factor of 78.6%.

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Source: ANAC

But while the airline is growing its load factor, it still trails behind TAM, Gol and Azul in market penetration. TAM, which will depart Star for Oneworld in 2014, held the lion's share of the domestic Brazil market in the first ten months of 2013 with a 38.5% share. Slightly behind was Gol with a 38% slice of the pie, and then Azul in third place with a 12.1% share.

Gol's close ties with SkyTeam carrier Delta Air Lines have made it a less likely candidate for Star membership. Azul has been identified by observers as a potential partner for Star, which urgently needs to find a new partner in Brazil after TAM leaves. Azul's founder David Neeleman has not expressed the same enthusiasm as Synergy's Efromovich on taking his airline into a global airline alliance. It is also not clear how Azul's low-cost structure will fit in with the full-service offerings of Star's members, although the Brazilian carrier has not hesitated to form partnerships outside the traditional alliance model. Last week, it unveiled its first interline agreement, with TAP Portugal - incidentally, a Star carrier.

Star's presence in Brazil, the world's third largest domestic market, will become clearer in the year ahead. But in the meantime, Avianca Brazil's impending regional order could help it gain greater traction at home and make it a more attractive partner for the alliance.

Even though Brazil's dominant players TAM and Gol have spent the past year reducing domestic capacity, Azul has steadily grown its network and added new destinations as it continues to dominate at secondary airports on routes where it faces no competition. Avianca Brazil's new regional aircraft will allow it to compete with Azul on city pairs that are bypassed by TAM and Gol, which operate bigger aircraft on denser routes.

The addition of new A350s from 2017 will also boost Avianca Brazil's ambitions to become a bigger player. It has 10 A350s on its orderbook, with the first to be delivered in mid-2017, Ascend Online shows. Avianca Brazil has not said where it plans to operate the A350s to, but has indicated on several occasions that it has long-haul ambitions.