NEW YORK--(BUSINESS WIRE)--Link to Fitch Ratings' Report: Brazilian Airlines Dashboard http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=753092
Fitch Ratings has published its new Brazilian Airlines Dashboard.
Fitch sees limited improvement in operational margins during the second half of 2014. A weak macroeconomic environment coupled with limited price increases, moderate traffic growth, and increased competition will pressure revenues. Costs remain under pressure from relatively high fuel prices. The industry continues to react to the difficult market by rationalizing capacity and improving fleet utilization.
The Brazilian domestic market's capacity management, as measured by available seat kilometers (ASK), has remained negative to flat during 2013 (negative 2.9%) and the first five months of 2014 (+0.6%). ASK development reflects different business strategies taken by the market players. GOL and TAM have been reducing capacity, while smaller players - Azul Linhas Aereas Brasileiras S/A (AZUL) and Avianca Brazil (AVB) - continue adding capacity during the period.
Although the dominance in access to Brazilian main airports' slots by TAM and GOL remain an important barrier for competitors, smaller players view the current scenario as an opportunity to gain market. TAM and GOL combined control more than 60% of the gates at Brazil's eight most important airports in the domestic segment. Two smaller carriers, Azul Linhas Aereas Brasileiras S/A (AZUL) and Avianca Brazil (AVB), continue to aggressively expand their presence in the market and represent risks to profitability for the larger carriers. AZUL's and AVB's participation by ASK were 16.6% and 7.5%, respectively, as of May 31, 2014.
During 2013 and the first five month of 2014 the total number of transported passengers - according to ANAC - in the domestic market were 89.9 million and 38.9 million of transported passengers, respectively, resulting in growth rates of 1.4% and 9% in each period. The World Cup had a negative impact on traffic during June and July as business traffic declined. The total number of transported passengers in Brazil during 2014 is expected to be between 5% to 7%.
Increasing costs remain a major challenge for the industry. Approximately 60% of total costs for companies in the industry are U.S. dollar denominated. Fuel is a large component of this figure. The Brazilian real has been weaker versus the U.S. dollar during the first half of the year than the 2013 average, and oil prices remain high relative to 2013 levels. Both factors are putting cost pressure on the industry.
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