Brazilian airlines are seeing their comfortable cartel crumble in the wake of a full-scale fares war which is raging through the country.

Several airlines began offering generous discounts on selected flights at the end of last year. But the battle took on a new dimension in March when TAM slashed prices on Rio de Janeiro-Sao Paulo - the country's most profitable route. Varig hit back by reducing fares on its rival service, while Varig subsidiary Rio-Sul chipped in with its own discounts on the route.

Since then, the battle has spread elsewhere. Vasp now sells 10 per cent of seats at a 60 per cent discount and TAM has a similar set-up. Varig gives 55 per cent discounts on night flights and 30 per cent on most others. Transbrasil sells 20 seats on each of its flights at a 45 per cent discount.

In addition to lower fares, the airlines are now offering more flights on new routes, many of them leaving from Congonhas airport in Sao Paulo. Congonhas was previously restricted to regional flights and the Rio shuttle, but has now been opened up to all flights operated by aircraft no larger than a Boeing 737. One airline source says that Brazil's Civil Aviation Authority has received applications for 500 new slots per week at Congonhas.

The opening up of the airport is part of a package of measures announced by the Brazilian government in December. The government also authorised charter flights to be flown on any route by any company in an attempt to lower fares, and opened up the previously controlled Rio-Sao Paulo route to any airline.

To Brazilian airlines, used to charging the same fares, the situation spells uncertainty - particularly as the Brazilian high season, which runs from December to March, has drawn to a close. 'At the moment, everybody is making a loss, offering low prices and flying half empty,' says Transbrasil. The airline admits that while fares have been reduced, volume has failed to increase accordingly because the fares are still not low enough for most Brazilians to be able to afford.

Nevertheless,Transbrasil, which has just won authorisation to fly from Brazil to Portugal and Chile and hopes to begin a codesharing agreement with TAP Air Portugal, still means to pursue its fleet expansion plan, probably with Boeing 767s and 777s.

Analysts have accused the airlines of embarking on a foolhardy battle and say the consequences are unpredictable. 'I'm all in favour of lower fares, provided it is done in a conscientious and traditional manner, with a careful reduction of costs,' says José Carlos Martinelli of EuroLatin consultants. 'But what we have here is a predatory war. It could benefit the passenger in the very short term, but after that it could have disastrous consequences,' says Martinelli.

Source: Airline Business