Low-cost airline takes off in Brazil
RIO DE JANEIRO — Steely haired executive David Neeleman — veteran of three airlines in the United States — was geared up to take his experience and vision to a new market. The only question for the founder of JetBlue was which market?
So the São Paulo-born executive conducted a passenger analysis, comparing Latin American countries. When Neeleman discovered that twice as many Mexicans and Argentines took plane trips compared to Brazilians, even though Brazil boasts higher per capita income, the choice was clear.
“It was a decision based on fact, not emotion,” said Gianfranco Beting, marketing director of Azul Linhas Aéreas Brasileiras S.A., Brazil’s newest low-cost airline that made its maiden flight in late 2008. “The fact that Neeleman was born here and loves the country also played a role.”
As part of his consumer-friendly approach, Neeleman ran an online poll to name the airline in a contest that attracted nearly 160,000 votes. The winner — Azul — echoes the name of Neeleman’s big U.S. success, JetBlue, for which he served as CEO until 2007.
The name was the easy part. Raising start-up capital in the midst of the global economic storm presented a huge challenge. Eventually Neeleman was able to put together $200 million from American and Brazilian investors, with Grupo Bozano, the privately held holding company, taking a major stake. More recently, as credit markets eased, Neeleman secured another $35 million.
The new Brazilian airline borrowed more than just a name from JetBlue. Azul adapted some of JetBlue’s innovations, such as leather seats, tray service instead of carts and two extra inches of legroom to make flights more comfortable than travel with competitors.
By establishing its base in Campinas, a city some 85 kilometers (about 53 miles) from São Paulo, Azul also applied the strategy of many lower-cost airlines worldwide that operate out of a secondary airport near a major metropolitan area. It began flying on December 15, 2008, with daily non-stop service from Campinas to Porto Alegre and Salvador.
Today Azul flies to 17 destinations in Brazil, 14 of them via non-stop service. It operates with a fleet of 15 aircraft and has ordered another 61 from Brazil’s airline manufacturer, Embraer.
Multiple non-stop flights to key cities — at accessible price points — are fueling faster-than-predicted growth. Azul charges about $62 to fly from Campinas to Porto Alegre, on the southern coast. “The idea was to capture clients who used buses and those who didn’t travel much,” Neeleman said.
So far, the strategy is working. According to Brazil’s National Civil Aviation Agency (ANAC), some 80 percent of Azul’s seats were occupied in 2009, a record among Brazilian airlines. While TAM and Gol dominate the domestic aviation market with a combined 80 percent market share, Azul, in just one year of operation, doubled its share of the domestic passengers, from 2.2 percent to 5.4 percent. It is a strong player among discount carriers like WebJet, Ocean Air and Trip.
Azul has little competition in Campinas because most domestic flights depart from the Congonhas-São Paulo Airport. To attract the business traveler living in São Paulo and in other major cities in the interior of the state of São Paulo, Azul offers free bus service to the Campinas airport.
But the location, some critics say, may limit Azul’s future ability to expand.
“The model Neeleman created for Azul is good but the Campinas airport lacks infrastructure, has limited parking for planes, no place to eat, and it’s already jammed,” said Carlos André Spagat, editor of Flap, a Brazilian aviation magazine. “Operating only from Campinas is not good business,” Spagat said. “Azul can grow more but the airport, no.”
Although Neeleman said he eventually will operate more flights that will bypass the hub (Azul recently launched service between Belo Horizonte and Porto Alegre), he insisted that Campinas can handle three times the current traffic. Before Azul entered the picture, Campinas had 18 daily flights; now there are more than 100. The airport has an area designated for international landings that isn’t currently used, Neeleman said.
The Azul founder added he is working with the Brazilian Agency for Airports Infrastructure, Infraero, about improvements to accommodate more aircraft. “Within five years, Brazil’s aviation market is expected to have 150 million people flying and we will have about 150 airplanes to carry them,” Neeleman said.
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