The airline Gol announced this Wednesday (11) that it will be controlled by a company based in the United Kingdom. The controlling shareholder of the Brazilian, the stock investment fund furniture, and shareholders of the Colombian group Avianca signed an agreement for the creation of the business conglomerate called Grupo Abra. The two airlines will be under the umbrella of the holding company, but the operations of each remain separate.
experts heard by UOL say that this type of agreement is common for companies to reduce costs, pay less taxes and seek cheaper financing, especially after crises, such as the pandemic. According to them, the movement does not change the concentration of the Brazilian air market, which remains high, and should not have an impact on ticket prices. Find out more below.
‘Concentration is normal after crises’
The agreement between Gol and Avianca follows a trend that has already occurred in Brazil, which is the concentration of the market. According to Edgard Monforte, professor at FEA/USP (Faculty of Economics, Administration and Accounting at the University of São Paulo), in Ribeirão Preto, the announcement is common and even expected.
“The concentration of companies is normal after a period of crisis, such as the pandemic. The creation of this holding company can be attributed to the issue of the health crisis”, he says.
This vision is shared by Oswaldo Sansone Rodrigues Filho, professor of the Airports course at Mackenzie’s Civil Engineering faculty. “This movement happens, mainly, as a result of the pandemic, due to the difficulties that companies had to maintain financial health. It is a help, a more entrepreneurial move, a contribution arriving to save companies”, he says.
According to experts, mergers help companies gain scale and reduce costs. As they get bigger, they can negotiate better costs, such as a reduction in the value of leasing aircraft or with suppliers.
Gol will also benefit from moving its headquarters to the UK. “In addition to paying less taxes, it is possible to make operations in the financial market more easily, with lower cost fundraising”, says Monforte.
According to experts, among the possible advantages in the business, the following stand out:
- Cost reduction with route integration
- maintenance cheaper
- Possibility of purchasing supplies and negotiations together, generating savings
- Greater ability to negotiate fuel prices
- Tax advantage (less taxes) and better access to capital markets due to move to UK
In Brazil, only three companies dominate the air transport market. They are, with their respective share in the share of paid passengers until March 2022:
- Latam (34.79%)
- Goal (33.22%)
- Blue (31.03%)
For Sansone, the change in Gol’s organization should not change the dispute between Brazilian companies at first.
“The competitive environment has not changed. There will not be a new company, since Avianca does not operate here. Therefore, I do not see any changes in the market or in the competition environment”, he says.
The current concentration, according to Monforte, may be bad, but the Brazilian market is not in a position to increase the number of airlines operating here.
“Competition in the airline industry is desirable. But to have competition like in the United States, the country would need to have more airports and slots [horários para pousos e decolagens]. As long as there are no more airports competing with each other, like there, we won’t have that competition,” he says.
Will it impact the ticket price?
The agreement should not have an impact on ticket prices according to experts, because the sector is still facing a difficult recovery because of the pandemic crisis and high fuel prices.
At the same time, as competition is not expected to change, there is also no downward pressure on prices.
“The domestic environment in the country remains, so I don’t see any changes in the market or in the competition environment. As a result, I also don’t see an impact on the value of tickets due to this movement of the controllers”, says Sansone.
For Monforte, there needs to be more competition for tickets to drop, which is not the situation at the moment.
Concentration is frequent in the aviation sector in Brazil
Concentration, through mergers and acquisitions of companies, is not necessarily strange in the Brazilian market.
In recent interviews, the president of Gol, Paulo Kakinoff, had already mentioned this possibility on the horizon of the national aviation market, given the drop in demand.
One of the most recent cases was Azul’s attempt to buy Latam, whose parent company is undergoing a restructuring process in the US (Chapter 11, similar to judicial reorganization in Brazil). Even with the support of some of the creditors of the Latam group, the negotiation was not concluded due to the high amount that Azul would have to pay for the acquisition.
Several companies have already gone through this concentration process in recent years. In the last decade, the Brazilian TAM merged with the Chilean LAN, creating Latam.
In turn, Gol incorporated Webjet in a process that ended in 2012. Before, in 2007, the company had also purchased Varig.
In 2020, Azul completed the purchase of Two Flex, in a deal worth R$123 million.