Brazil’s Azul To Buy Smaller Rival Trip

 

Brazil's Azul To Buy Smaller Rival Trip

Brazil's Azul To Buy Smaller Rival Trip

Brazilian airline Azul took control of smaller rival Trip on Monday, securing third place in a market that has seen a wave of consolidation prompted by high fuel costs and cooling demand.

David Neeleman, who founded JetBlue Airways and then left the airline in 2008, will run the holding company that controls his Brazilian venture, Azul Linhas Aéreas Brasileiras, and rival carrier Trip, according to a joint statement by both firms.

In under four years Neeleman has expanded Azul, his fourth airline, from a USD$200 million startup into a credible challenger to Brazil’s dominant airlines, TAM and Gol, which control about 80 percent of the market.

“A third force in Brazilian aviation is being born,” said Trip Chairman Renan Chieppe at a press conference in São Paulo.

The airlines carried 14 percent of domestic Brazilian air traffic in April and expect combined annual revenue of BRR4.2 billion reais (USD$2.1 billion) and a fleet of 122 planes by the end of this year.

Azul’s owners will hold two-thirds of the company combining Azul and Trip’s operations, Chieppe said. A share swap will consolidate the companies, with no cash changing hands. The deal is pending approval from Brazil’s antitrust and civil aviation authorities.

INDUSTRY CONSOLIDATION

The deal deepens the industry’s consolidation after Chile’s LAN Airlines announced plans in 2010 to take over TAM, Brazil’s No. 1 carrier. Airlines are joining forces to better cope with rising fuel and operational costs and a slowing economy that is pinching demand for travel.

Azul’s deal spells the end of TAM’s preliminary agreement to buy 31 percent of Trip, although a code-sharing accord with TAM will remain in effect, Trip’s chief executive José Mario Caprioli told reporters.

Trip’s controllers also bought back a 26 percent stake that had been sold to US regional carrier Skywest Airlines, Chieppe said.

NEW ROUTES, NO LAYOFFS

“Azul and Trip together have the scale and volume to bring some interesting competition on fares and destinations,” said Paulo Resende, professor of transport at Brazil’s Fundação Dom Cabral. “This grows the number of big players.”

The airlines run competing operations on 15 percent of their routes, but Neeleman said the purpose of the merger was to expand frequencies rather than cut them. Executives dismissed the idea of layoffs among their combined workforce of 8,700.

The airlines currently fly 62 Embraer regional jets and 50 ATR turboprop planes. Neeleman said the combined company’s fleet plans up to 2015 only involve those two suppliers, but “there is still time to consider” purchases from other plane makers after that.

Azul has gradually attained its third place share of Brazil’s domestic market with low fares and point-to-point routes to under-served cities with no layovers.

The carrier and its smaller peers have eroded the market share of bigger rivals by tapping demand for affordable air travel in a vast country where fewer than 10 percent of the population regularly flies and most people travel by bus.

Among Azul partners are Gávea Investimentos, the Rio de Janeiro-based asset management company controlled by JPMorgan Chase, and US private equity firm TPG.

(Reuters)



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