Brazil has removed the last remaining controls on internal air fares, although the move is expected to have little effect on a market that is still in upheaval following the major deregulatory measures taken one year ago.

The Brazilian Civil Aviation Authority (DAC) has announced that airlines are free to charge any tariff they see fit on any routes, but adds there will be careful scrutiny to avoid dumping and unrealistically low fares. Previously, airlines were allowed to offer a maximum discount of 65% of the official fares.

The airlines, however, say they are struggling to come to terms with the new set-up and that further discounts to the ones already being offered are unlikely. Varig says it will continue its efforts to cut costs and offer better service while smaller airlines such as VASP, Transbrasil and TAM are making similar noises.

The real shake-up occurred last year, when the DAC took steps to allow airlines greater freedom in opening up new routes and offering lower prices. The airlines responded by embarking on an unprecedented price war which has had a profound effect on the industry. New routes have sprouted, fares have been halved on many routes and the effects have spread to other transport services - long-distance bus companies have been forced to spruce up their services to keep passengers who can now opt to fly.

The airlines say they are carrying more passengers, but are operating in the red because of the new fares. They say further discounts are unworkable. The full effects of the war are expected to be revealed when the airlines announce their 1998 full year results.

Source: Airline Business