Brazil Airlines

Airline CEO explain why doing aviation Business in Brazil is Difficult

Brazil is 5th largest country in the world, which means more population, more area and more need of resources in this scenario, how can we forget aviation industry of Brazil, when we talk about increasing population in the country it is sure that we also talk about increasing demand of that population. Brazil being the 5 largest country need more resources in every field and the same case goes with aviation market.

With this high demand Brazil aviation market is increasing with a great pace. Now Brazil has become one of the largest aviation markets in the world, it is the market that has doubled in size from past decade just to full the increasing demand, now the country is operating aircrafts from almost every city of Brazil, but apart from the fact airlines have long complained of operating in difficult business circumstances.

According to CEO’s of two chief airline companies GOL and AZUL Brazil the county’s tax structure is major riddle between the growth of aviation market in the country. When asked to these CEO’s the clearly mentioned their thoughts about this.

David Neeleman, founder and CEO of Azul Brazilian Airlines, told Business Insider earlier this year that before he started Azul in 2008, there were 47 million passengers, Last year, Brazilian airlines ferried roughly 100 million passengers, and yet, its airlines seem to be in a constant battle of survival. Earlier this month, Avianca Brazil, the country’s fastest growing and fourth largest airline, filed bankruptcy after leasing companies threatened to repossess 30% of its planes.

Neeleman added that “Doing business in Brazil is not for the faint of heart”,Brazil’s airlines, just like its contemporaries around the world, are exposed to the threat of fluctuating global fuel prices along with economic and political instability, but they are also subjected to a host of domestic issues that create an extra layer of complexity.

David Neeleman, is founder of JetBlue in the US and cofounded WestJet in Canada, and Azul, it is also known as Azul LinhasAereasBrasileiras or Azul Brazilian airlines is a Brazilian airline company, it’s headquartered in suburbs of Alphaville, the municipality of Barueri in Sao Paulo. Azul airline is created by David Neeleman, he is an American born in Brazil which was also a co-founder of the company JetBlue which is an airline company of US, its founder is Peter Janot and Chief operating officer is Miguel Dau. This airline company is founded in December, 15,2008. Azul owns 8.5% Brazilian market share which makes it one of the chief names in aviation industry of Brazil.

On the other hand, according to the serial airline entrepreneur, Paulo Kakinoff who is the CEO of Gol airlines the heavy tax burden levied on airlines by the Brazilian government, especially with regards to fuel, makes for particularly challenging operating conditions.

Paulo added “Brazil has one of the most complex tax structures in the world,” The effect it can have on an airline’s bottom line is pretty incredible. He said”We have some of the highest fuel prices in the world that are an average of 30% more expensive than in the United States, and that is due to taxes,” FredericoPedreira, CEO of Avianca Brazil, told Business Insider in an interview earlier this year. “When you are 30% more expensive on fuel and fuel represents over 35% of your costs, you can imagine there are some limitations.”

According to Paulo and Gol Chief Financial Officer Richard Lark, the 25% state-levied ad-valorem tax on jet fuel has led Brazil’s largest airline to pay 50% more for fuel than it would in the US, and this tax burden reaches far beyond fuel.

In fact, if you include all of the taxes on input costs and revenues, the “bite the government takes,” or the total tax burden on an airline like Gol through its entire value chain, is somewhere between 40% and 50%, Lark said, as a result, a big part of success comes down to tax management.

“If you’re not good at it, 50% is going away. But if you’re good at tax management, it’s probably 40%, and that 10% is a big difference with an enormous impact,” Lark said.

Paulo thinks the tax structure could soon change. “The good news is that, from society’s perspective, it is clearer than ever before that we can’t afford this kind of tax structure anymore,” Kakinoff said. “I believe the pressure on the political system to make changes soon is going to be successful.” More specifically, the entire tax system — federal, state, and local — needs to help businesses free up cash flow for growth, Lark said.

GOL is created on January 15, 2001 and it’s headquartered in Sao Paulo Brazil, it is the major name in Brazil Aviation companies. The company is headed by Constantino de Oliveira Junior, who is the heir of the golden mining group which is one of the largest passenger transport group of Brazils.

The company is started with the concept of low fare, but unfortunately was unsuccessful to stick with the concept for longer.