Brian Homewood

Brazil, a country with some of the highest internal air fares in the world, has taken the first tentative steps towards deregulation by allowing unrestricted charter flights.

The Civil Aviation Department (DAC) has given the go-ahead for any nationally-owned company to operate charters on any route at any price, provided tickets are sold more than 48 hours in advance, a policy which it hopes will reduce fares through increased competition. The DAC has also increased the maximum discount to be offered on full fares on scheduled flights from 50 to 65 per cent.

The moves, announced on 2 January, were pre-empted by flag carrier Varig which announced its own programme of cheap flights in December, with Transbrasil and Vasp quickly following suit. The airlines and the DAC have acted under increasing pressure from the government and the tourist industry, which have become impatient at the cost of domestic travel.

Until the end of last year, internal air fares were extremely high. Even the 50 minute flight on TAM to the Riberao Preto, centre of the sugar cane industry, costs $510, compared to a flight of similar length in neighbouring Bolivia which costs $120.

Brazilian carriers Varig, Transbrasil, Vasp and TAM have blamed the steep fares on high costs but critics put the situation down to a lack of competition. There were almost no discounted air fares available, while charter flights could only be operated as part of a package that included accommodation.

In August, the government, alarmed by the fact that it is cheaper to fly from Sao Paulo to Miami than to the beaches of north eastern Brazil, decided to set up a special commission. This was formed by representatives from the tourist authority, Embratur, the justice ministry, the finance ministry as well as the aeronautics ministry.

Four months later, Varig announced it was instigating night flights with reduced in-flight service at fares that were around 40 per cent of the full price and almost the same as those charged by luxury buses. 'This was produced as a result of a year of studies, when Varig realised that there was a new class of consumer,' says Varig president Fernando Pinto. 'They began by buying domestic goods and now they can fly. There are 13 million people in this class.' Pinto says Varig has leased six Boeing B737-300s for its new service, which he believes will increase demand for domestic travel by 15 per cent in its first year.

Meanwhile, Transbrasil and Vasp promise to increase their discounts by up to 50 per cent once the high season is over in February. 'It's our contribution to develop national tourism,' says VASP's owner Wagner Canhedo.

A further measure taken by the DAC now allows all companies to operate out of the central airports in Rio, Sao Paulo and Belo Horizonte.

There is little doubt among Brazilians that the latest measures by the DAC and Brazilian airlines have been motivated by deregulation. 'The DAC are cutting off their rings to save their fingers,' says one analyst. And the government has pledged to carry on with its deregulation moves. Its next likely step will be to increase foreign capital limits in Brazilian airlines from 20 per cent to 49.9 per cent. The government also wants a civilian-run agency to take over most of the DAC's functions, leaving the military in charge of air traffic control and accident investigation.

Source: Airline Business