“Want a cheap ticket? Wait for a promotion or buy in advance”, says CEO of Latam Brasil

Engineer Jerome Cadier, 50, is happy. One of the two questions he’s heard the most in recent times no longer needs to be answered. Everyone wanted to know if Latam – which in May 2020 joined the judicial reorganization in the United States (process called Chapter 11) – would be sold to Azul.

The Brazilian subsidiary of Latam, chaired by Cadier, was for months on the target of Azul, a rival commanded by John Rodgerson, who saw in the merger of the two companies a chance to emerge as one of the largest groups in world aviation.

But on November 3, the Chilean-Brazilian airline announced its departure from Chapter 11. “We left this process stronger than ever, with a cash position of US$ 2.2 billion and a debt reduced by US$ 3.6 billion,” said Cadier. “Now I’m my competitors’ biggest nightmare.”

But there is another question that the president of Latam Brasil should not stop hearing anytime soon: what to do to buy a cheap air ticket?

“There are people who think they need to stay up at dawn, or use different computers, but none of that works,” said the executive to Sheet🇧🇷 “Buy in advance or take advantage of a promotion,” he said. “If you know there’s going to be a promotion, wait. If you don’t know, buy it soon. Every day that the travel date approaches, the more expensive the fare. A fuller plane is more expensive, an empty plane is cheaper.”

According to Cadier, ticket prices should only return to normal in the long term, after the oil crisis, triggered by the Ukrainian War, is resolved. Aviation kerosene (QAV) alone accounts for 40% of airline costs. And in 2022 alone, the price of this fuel jumped 60%.

The increase in QAV weighs more on Brazilians’ pockets than any other world traveler, says Cadier. “Brazil has the most expensive aviation kerosene in the world”, says the president of Latam Brasil.

According to Abear (Brazilian Association of Airlines), the Brazilian QAV is between 30% and 40% more expensive than that of the United States, one of the largest domestic aviation markets in the world, considered a global reference. Brazil is the only country in the world that taxes the QAV, says the entity.

Cadier expects the issue to be addressed by the elected president, Luiz Inácio Lula da Silva (PT). “As an airline director, I don’t care whether Petrobras is going to be privatized or not. But I do care about having cheaper fuel, to offer a lower fare and transport more passengers,” he says.

While this reality is not enough, Latam Brasil promises promotions this year-end. The high season, in the months of December and January, represents about a third of all the company’s demand – there will be 7 million passengers in the period, which will have 3,200 extra flights, national and international.

“We will offer cheaper tickets for the next two months, but within the reality of high season”, says Cadier, guaranteeing that there will be offers on Black Friday, the 25th.

On Friday night (11), the airline launched its “Wake up Black Friday”, with tickets from R$ 169, to travel between January and March 2023. Promotional prices are valid until Wednesday (23).

The executive is particularly concerned with the operation of Congonhas airport, in the capital of São Paulo – which, like Guarulhos airport (SP), is a “nerve” point in the operation of Latam Brasil.

“All our planes, at some point, pass through there”, he says. But Infraero decided to increase the airport’s capacity by more than 10% next April, he says, before the investments foreseen in the Aena concession plan, which won the auction.

“You increase the number of passengers at an airport that is already operating at its limit and give the go-ahead for the start of a monstrous renovation work. Imagine the chaos!”, he says. “It was an unwise move.”

The Latam group concluded its departure from Chapter 11 this month. What are the group’s priorities in Brazil from now on against? It was a very hard period, a crisis caused by external factors, the pandemic, but we were happy to leave that phase behind. Now we want to maintain the level that we have reached, of cost competitiveness and low debt, the two main benefits of the restructuring process. As a result, we were able to expand our operations to more destinations and open new routes. Before the pandemic, we operated 44 domestic destinations. Since then, we have launched 11, we have 55 in Brazil and gradually resumed destinations abroad, which today total 22.

Brazil is the group’s biggest market, but it suffers from inflation and a possible new wave of Covid-19, precisely at a time of expansion of domestic routes. How to deal with these two demand limiters? We have three major concerns on the horizon for 2023. Inflation and, more specifically, the cost of fuel, is one of them: this year alone, aviation fuel has increased by 60%. Considering that 40% of an airline’s costs are fuel is very relevant. The second concern is the exchange rate, since between 55% and 60% of costs are in dollars. If the dollar rises from R$5.10 to R$5.40, for example, it is a very strong variation. The third factor of concern is economic growth, which needs to happen to give new impetus to the sector.

Isn’t a new wave of Covid a cause for concern? In the last few days, there has really been an increase in Covid cases in our team, which is tested daily. But they are milder symptoms. Thanks to the vaccine, the disease presents itself as a stronger flu, with less risk to health and therefore less affecting the operation. That’s why I don’t consider, so far, a concern for 2023. But we’re paying attention, it’s obvious.

At the end of 2021, the Brazilian found very high ticket prices. This end of the year we will continue to see expensive rates🇧🇷 We will. The effects of the Ukrainian War remain strong. Even if tomorrow the end of the war is declared, it will take many months before the entire supply chain for oil products is regularized. My feeling is that, in the medium or long term, the price of oil should go down. But I don’t know when that will happen. Any guess is a guess in the dark.

What can Latam do to help the customer fly cheaper? Everyone asks me how to buy cheap: Do I stay until midnight? Do I use different computers? No, none of this works. Buy in advance or take advantage of a promotion. If you know you’re getting a promotion, wait. If you don’t know, buy it soon. As the date of travel approaches, the fare becomes more expensive. A fuller plane is more expensive, an empty plane is cheaper.

Congress approved the return of the mandatory baggage allowance (each passenger is entitled to one suitcase weighing 23 kg on domestic flights and 30 kg on international flights). President Jair Bolsonaro (PL) vetoed it, but this veto still needs to be appreciated. How will ticket prices be if the mandatory baggage allowance returns? The suitcase is never free. The fare will be included in the price, which I don’t think is fair with those who don’t carry a suitcase. Everyone should pay for what they consume. Very few countries offer mandatory baggage allowance — only Cuba, Russia and Korea. If Brazil aligns itself with international practices, of not instituting a franchise, it will attract more airlines to the country, stimulate competition, and fares will go down. Companies like JetSmart and Sky were interested in the Brazilian market.

Why is there voluntary check-in of luggage? 🇧🇷when you take your hand luggage, but it ends up being checked in, free of charge? If all 180 passengers that we carry on the A320 board the aircraft, each carrying a carry-on bag and a backpack, it won’t all fit. When we run out of available space, we release the dispatch free of charge. In Chile, there is a stricter charge on hand luggage: if it is out of size or weight, the passenger is charged at the boarding gate. As a result, many Chilean travelers have already checked their bags. Here in Brazil, we are waiting for this franchise decision to start charging at the boarding gate as well.

Price sensitivity is key in our market. The person decides whether or not to travel based on the fare. Airlines tend to push the price of the fare down and the bag up. After attracting the passenger to buy the ticket, he then decides whether to take too much or too little clothes, whether to bring gifts, etc. With this franchise decision, the cheapest flight fare ceases to exist.

This year, the Spanish company Aena won the auction to manage Congonhas airport, in São Paulo. What is your assessment of the concessions of airports in recent years? We had a brutal increase in investments, in infrastructure, in passenger comfort, in the ability of airlines to operate. A very professional management. The downside is that we significantly increased costs. Brazil chose the model of whoever pays the highest grant, instead of being the operator who practices the lowest cost. To compensate for the high value of the concession, the operator will increase the rental price, the fee charged to the airlines, etc. If it were for the lower cost model, there would be a lower fare, which would lead to more passengers, more hotels, more taxis, more restaurants, more commerce… The entire tourism sector would be increased.

What is your opinion about the future of Congonhas airport? Congonhas is a key airport for Latam, we make 120 domestic flights a day there, practically the same number of domestic flights as Guarulhos. It is a central airport and distributes many flights that connect to the air network of 140 planes in the country. Any cancellation or delay in Congonhas affects the entire network. Under the management of Aena, the airport will be renovated, its capacity will be increased, more terminals, more check-in points, more parking. There are very good things ahead. But until then, the passenger experience will get much worse.

Infraero decided to increase the capacity of Congonhas by more than 10% next April, a space that is already operating at the limit of its capacity. The problem is not safety, it’s comfort. There will be more queues in the parking lot and on the avenue that gives access to the airport, delays in connecting, to pick up or drop off the bag, queues at check-in, to get to the X-ray, more remote boarding (when the aircraft is parked in the yard and it is I need to use a bus to get there).

Added to this is the fact that the expansion work needs to be done. You increase the number of passengers at an airport that is already operating at its limit and give the go-ahead for the start of a monstrous renovation work. Imagine the chaos! It was an unwise move.

After the elections, what are your expectations for 2023? We have adjustments to make in the country and the population has chosen to make changes. The reduction of inequality, the preservation of the environment, the issue of hunger constitute a very important agenda, embraced by the future government. However, the airline sector’s agenda remains unchanged: we defend a reduction in the Brazil cost, which is absolutely compatible with what we have heard so far from Lula. One of the main obstacles is the cost of aviation fuel in the country, the most expensive in the world. As an airline manager, I don’t care whether Petrobras is privatized or not. But I care about having cheaper fuel, to offer a lower fare and transport more passengers. I’m moderately optimistic about next year — moderately, because we’re going to be in a global recession.