MIAMI — Amid numerous concerns about a deteriorating economy and the impacts of the Zika virus and safety hazards, North American, European and Asian carriers are retreating from Brazilian markets despite a favorable exchange rate for tourists and the appeal of events like the Summer 2016 Olympic games taking place in Rio de Janeiro.

The mentality is that Brazil’s economic plight will not rebound in the near term and ongoing troubles with physical and corporate safety will lead to further retreat in the premium travel sector.

By December 2016, international services to Brazil will have dropped 9.4% year-over-year from 8.7 billion to 7.9 billion ASMs. The tides have changed dramatically from 5-10 years ago, when global airlines were scrambling to take advantage of the surging Brazilian economy, only to discover roadblocks in the form of outdated airport infrastructure, bilateral airspace limitations and runway landing slot restrictions.

Despite massive improvements in recent years that have facilitated growth in Brazil, the misfortunes created by growing political unrest, a recession and currency collapse have made it clear that the benefits of operating services to Brazil do not outweigh the costs.

Brazil will contend with major capacity withdrawals in the next few months from some of its largest carriers, namely American Airlines and Air Canada from North America as well as Air France and Iberia from Europe. Additionally, Brazil is losing service from several of its 5th-freedom Asian carriers – namely Singapore Airlines and Korean Air — which is noteworthy given the increasingly rare presence of such route operations to connect far flung corners of the world with global hub bases, located over 8,000 miles away.

But even as fortunes are reversing for non-Brazilian carriers, there is slack opening for LATAM, Brazil’s largest and most powerful network carrier, and the consolidation of its vestigial carriers, LAN Airlines based in Santiago, Chile and TAM Airlines, formerly based in São Paulo, is creating avenues for the merged carrier to capitalize on network opportunities it previously avoided as two separate brands.

Previously, both carriers were aligned to different alliances and viewed each other as competitors with very little in common. LAN struggled with having hubs located in geographically distant corners of the world while TAM faced roadblocks in gate and runway-constrained airports and faced competition on nearly every single long-haul route. Both airlines also had mediocre products and were becoming increasingly exposed to the powers of consolidation in Latin America.

Now, as a merged entity, LATAM has slowly been evolving from a risk-averse carrier to a more aggressive market leader in launching underserved routes where demand is strong. Meanwhile, as both airlines receive newer, cost-efficient fleet types such as the Boeing 787 variants as well as the Airbus A350, there will be opportunities down the line to help backfill capacity in regions where competitors are no longer able to sustain losses in Brazil.

Additionally, the carrier is progressing with Joint Ventures and enhanced alliance agreements with oneworld carriers such as International Airlines Group (IAG) on transatlantic flights as well as American Airlines on North – South America services.

Singapore Airlines and Korean Air follow JAL’s 5th-freedom exit from São Paulo, leaving Air China as the sole East Asian carrier in South America

Within a seven-day span, both Korean Air and Singapore Airlines announced they were exiting from the São Paulo market. Korean currently flies to São Paulo thrice weekly as an extension of one of its Seoul – Los Angeles flights, operated on a medium-gauge Airbus A330-200. Singapore Airlines flies to São Paulo thrice weekly via Barcelona. Korean Air has been serving São Paulo since 2009 while SIA launched São Paulo services in 2011.

This will be the first time an East Asian carrier has exited Latin America since Japan Airlines cut its New York JFK – São Paulo service in 2010, although that was conducted as a Chapter 11 bankrupcty restructuring exercise in which the carrier culled multiple long-haul 5th routes, including Mexico City (which was served via Vancouver). JAL had hinted at the possibility of returning to São Paulo in the past, but never followed through.

Air China has served São Paulo on-and-off via Madrid since 2010. The route was briefly suspended for a period of time during the global economic crisis, but has since been operating on a twice-weekly basis as an extension of Beijing – Madrid. It is rumored that Air China may also re-consider the longevity of its Brazilian services given that the 2-weekly frequency is unappealing and costly to operate.

Korean Air and Singapore Airlines are sensibly deploying capacity elsewhere given that operating fifth freedom markets, even on a sub-daily basis, requires each airline to provide a dedicated aircraft to fly these routes. SIA has announced that it is expanding its LAX operations from 1 to 2 daily flights utilizing a 777-300ER, which will presumably be enabled by the freed up airframe from São Paulo. Korean Air has been rumored to launch Delhi this year utilizing the aircraft operated between LAX and São Paulo.

Passengers traveling between Seoul and São Paulo or Singapore and São Paulo still have several 1-stop itineraries that offer fewer than 6 hour connect opportunities. A schedule builder via Diio Mi shows that such possibilities exist between Singapore and São Paulo on Emirates, Etihad and Qatar Airways, while Air France, Turkish, British Airways, Etihad, Qatar, Emirates and American (over DFW) provide 1-stop links between São Paulo and Seoul.

American Airlines removes over a third of capacity from U.S. – Brazil, while relying on LATAM Joint Business to help reduce overexposure in Latin America

Historically one of the most aggressive carriers in terms of capitalizing on growth opportunities between the U.S. and Brazil, American Airlines plans to withdraw a sizable chunk of available seat miles in Brazilian airports by fall of 2016. In September 2016, American’s weekly round trip services between its U.S. hubs and Brazil will be at 132 weekly departures, down from 210 in July 2015.

Much of this capacity drop will come in the form of dropped routes, as American is cancelling service to five cities: Porto Alegre, Recife, Salvador, Curitiba and Viracopos. After the conclusion of the 2016 World Olympic Games, held in Rio de Janeiro, American will be down to serving São Paulo, Rio de Janeiro, Manaus, Brasilia and Belo Horizonte as its remaining stations.

American Airlines U.S. - Brazil Operations July 2015.
American Airlines U.S. – Brazil Operations July 2015.
American Airlines U.S. - Brazil Operations September 2016.
American Airlines U.S. – Brazil Operations September 2016.

With Korean Air cancelling its São Paulo 6th freedom route, American has a monopoly in the Los Angeles – São Paulo corridor, which it serves daily utilizing a 787. American is also planning on building up its LAX hub as a transpacific gateway market, to Tokyo (Haneda and Narita), Shanghai, Hong Kong and Beijing, with the latter pending government approval.


American has also applied for a joint business agreement (JB) with LATAM Airlines, which will cover services between the U.S. and six Latin American countries: Brazil, Chile, Colombia, Paraguay, Peru and Uruguay. LATAM presently offers over 270 round trips between the U.S. and all of LATAM’s affiliate carriers (LATAM Airlines Group, LATAM Airlines Brazil, LATAM Airlines Argentina and LATAM Airlines Ecuador).

American is also hoping that the U.S. – Brazil Open Skies agreement will materialize in fall 2016, a year after it was intended to go into effect in fall 2015.

LATAM has restructured its own route network between the U.S. and its Latin American hubs by lifting capacity out of Brazil and instead growing out of Colombia, Peru and Chile. LATAM has dropped Miami – Brasilia, Miami – Belo Horizonte, Miami – Manaus and Orlando – Brasilia, as a fifth-freedom service from New York JFK to Toronto (ending on October 1, 2016). However, LATAM has grown its presence in Lima by adding daily nonstops to Orlando, Washington, D.C. and increasing Lima – Los Angeles from 7 to 14 weekly flights.

LATAM U.S. - Brazil Operations July 2015.
LATAM U.S. – Brazil Operations July 2015.
LATAM U.S. - Brazil Operations September 2016.
LATAM U.S. – Brazil Operations September 2016.

Assuming American and LATAM are given the green light for the JB, it is likely that the two carriers will coordinate even more closely to minimize risk in Brazil. The LATAM merger culminated roughly three years prior to the deterioration in Brazil, but the opportunities afforded by hubs acquired in the merger with LAN (Santiago, Lima and Bogota) have helped to offset some of the network weakness in Brazil.

Secondary cities in Brazil impacted by cancellations from Air Canada, Air France, COPA, Delta, Lufthansa and TAP

Rio de Janeiro, Manaus, Brasilia, Belo Horizonte, Campinas and Manaus will lose several long-haul routes as well. Air Canada will cancel its recently-launched Toronto – Rio de Janeiro service and utilize the freed 767 to continue to expand its wildly successful Rouge low-cost product, while Lufthansa is cancelling its Munich – São Paulo route in favor of a new Munich – Buenos Aires service.

Delta is shuttering service from Orlando and Atlanta to Brasilia, as well as JV partner Air France from Paris to Brasilia. Copa and Tap are cancelling service from Campinas-Viracopos to Panama City and Lisbon, respectively, while TAP is also withdrawing from Lisbon to Manaus.


Further reductions and adjustments may occur after the conclusion of the 2016 Olympic Games in Rio de Janeiro.

For now, Brazilian aviation will be centered on infusions from foreign ownership, but even those developments face obstacles

The primary Brazilian carriers – LATAM Brazil, Gol, Azul and Avianca Brazil – have been turning externally to global partner carriers and investors to alleviate the impact of economic and political woes plaguing the aviation market at home.

The lifting of foreign ownership restrictions from 20% to 49% has been a hot topic dating back to impeached president Dilma Rousseff, which at one point grew to a full 100% proposal by June 2016 (which was vetoed by interim government leader Michel Temer).

Regardless, even amidst the murky environment where future adjustments to ownership stakes remain unclear, all four of the major carriers have altered or have announced plans to alter their foreign ownership structures in recent months.

LATAM plans on receiving a $613 million investment from OneWorld partner Qatar Airways, which would give the Doha-based carrier a 10% stake. Qatar currently flies from Doha to São Paulo and Buenos Aires, and has rumbled about plans to serve Santiago, Chile. Qatar also holds a 15% stake in International Airlines Group (IAG) which is also planning on formulating a JV with LATAM across the Atlantic.

Delta has a 9.5% stake in Gol while Air France-KLM has a 1.5% stake in Gol. Azul received a 23.7% stake from HNA Group subsidiary Hainan Airlines, valued at $450 million, while United has a 10% stake in Azul. Meanwhile, Avianca Brazil is avidly courting investors.

Though the landscape in Brazil, and more broadly Latin America, remains week, the developments in investment strategy reflect the value that foreign carriers see in some of the largest markets. Of course, stabilization will take time and return on investment even longer, but the new norm may position Brazil towards the best path of recovery.