Brazil Bill Would Deter Low-Cost Carriers, Regulator Says

(Bloomberg) -- Changes to a bill that opens up Brazil’s airline industry to foreign investment may scare off low-cost carriers, the head of the country’s aviation regulator said in an interview.

The regulatory agency, known as Anac, is concerned that lawmaker-backed changes mandating airlines to fly to smaller airports and also forbidding them from charging for baggage could make Brazil unattractive for companies like Sky Airlines SA and Norwegian Air Shuttle ASA. To avoid that problem, it is important that Congress approves the proposal in its original format, Anac head Jose Ricardo Botelho said.

“This bill is the last step that would allow an increase in investments, jobs and competition in Brazil,” Botelho said in an interview. “We want to bring in low-cost companies, but if the changes proposed in Congress go through, that won’t be possible.”

Brazil has been working for years to encourage greater competition and investments in its domestic airline industry that’s currently dominated by Gol Linhas Aereas Inteligentes SA, Latam Airlines SA and Azul SA. Those efforts gained new impetus under the administration of President Jair Bolsonaro, who took power earlier this year pledging to lure investments, boost public accounts and jump-start Latin America’s largest economy.

Floor Votes

The aviation bill was approved last month by a special committee. To become law, it still must be backed with floor votes in both the lower house and Senate, but the government lacks a working majority in Brazil’s highly divided Congress.

“I hope Anac’s voice is heard,” said Guilherme Amaral, an aviation specialist and a partner at law firm ASBZ Advogados. “Technical bodies such as Anac understand the market better and are committed to increasing competition. But then you have poorly prepared legislators who add some weird requirements to the bill for populist reasons.”

Both Anac and airlines have faced a public backlash over a law that expanded baggage charges but didn’t lead to lower ticket prices as authorities had promised. Botelho said an increase in fixed costs, which are set in dollar terms and account for over 60 percent of airline expenditures, undercut the chances of lower prices for consumers.

The debacle of Oceanair Linhas Aereas Ltda, which is drastically reducing its operations since filing for judicial recovery in December, hasn’t helped cut ticket prices. The airline, which operates under the Avianca Brasil brand, controlled 13 percent of Brazil’s domestic air travel market before filing for court protection.

“The only way to bring the plane ticket prices down is with more competition, more companies," said Botelho. "The changes that Congress is proposing to our bill would go in the opposite direction.”

To contact the reporters on this story: Mario Sergio Lima in Brasilia Newsroom at mlima11@bloomberg.net;Fabiola Moura in Sao Paulo at fdemoura@bloomberg.net

To contact the editors responsible for this story: Raymond Colitt at rcolitt@bloomberg.net, Matthew Malinowski, Bruce Douglas

©2019 Bloomberg L.P.