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Magic bus: a new airline promises to fill up Brazil's skies by putting bus passengers into the air

Latin Trade, August, 2005 by Margarida O. Pfeifer

Conventional wisdom says airlines should try to sell tickets to frequent fliers--people with money who are used to air travel. Yet the newest competitor in Brazil's airline industry--Brasil Rodo-Aereo, known as BRA--is changing those rules. The carrier, whose name is a play on the Portuguese word for "bus company," has been growing like a weed since it came into existence in late 1999 by convincing bus passengers to make the switch and travel by air.

BRA's strategy was born from a simple observation by the Folegatti brothers, Humberto, a physicist by training, and Walter, an engineer. "We read a study that said 50 million Brazilian passengers take bus trips of more than eight hours, and we realized that with low prices we could entice these people to take planes," says Humberto Folegatti, BRA's president.

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The brothers were right on the money. By catering to interstate bus passengers, BRA's ticket sales quickly took off. In just four years, the company's fleet has grown to nine Boeing jets from one. Now, with 540 monthly flights, the carrier is the largest charter service in the country.

BRA is scheduling a lot of flights, but it also boasts a rarity in modern aviation: full planes. Seat-occupancy is at 94%, far ahead of the national average of 67%. In 2004, BRA flights carried 5% of the country's 30 million airline passengers. It didn't take long for the company to garner the attention of Brazil's civil aviation regulator, which saw in BRA an ideal candidate to pick up abandoned routes left behind after the bankruptcy of Vasp and Varig's reductions in service. "In practice, we were already operating regular flights; all we were missing was the license," says Walter Folegatti, the company's vice president.

From the time it received its license to service regular routes, BRA began offering 28 regular domestic flights of 2,000 kilometers or longer in northeastern Brazil. The fledgling carrier plans to fly another five routes to the northern, central and western swathes of Brazil by year-end.

"We want to be the Casas Bahia of airlines," says Walter Folegatti, referring to Brazil's biggest home-appliance retailer, a discount chain that took off during the 1990s on a low-price strategy. "Our goal is to popularize air travel in Brazil. This kind of transportation goes largely unused," says Walter Folegatti, who sees Brazil's 65 million cellular telephone users as potential customers. "Anyone who has a cell phone has the spending power to buy an airline ticket," he says.

Expansion plans will require BRA to invest US$8 million this year--equivalent to half of its profits in 2004, when it posted revenues of $80 million. Ten Boeing 737 aircraft that can carry 170 passengers each have been ordered to meet demand.

To continue growing, BRA will rely on a three-pillar strategy of "profitability, low tariffs and high seat occupancy" according to the Folegatti brothers. BRA is debt-free, which allows it to sell tickets at up to 65% cheaper than other companies, and to win customers such as Antonio Marcone Ferreira Monteiro, the owner of a small Sao Paulo grocery store. Two years ago, Monteiro began to take BRA's direct flight home to his family in Juazeiro do Norte, in Ceara state. The 50 hours he used to spend on the bus has been cut to two hours and 45 minutes on the plane. "We spend a little more, but the time we save makes up for it," says Monteiro.

BRA opened all of its 180 sales outlets within a five-mile radius of city bus stations, confident that a large group of potential fliers simply lacks the necessary incentive to switch from taking the bus to getting aboard a plane. To further entice people away from the bus stations, the company offers a free shuttle service to otherwise remote airports. Last year, a civil aviation study conducted onboard BRA's planes found that 45% of the company's 1.5 million passengers were flying for the first time.

That figure makes industry officials very happy. "We need more competitors to make fares come down," says Jose Zuquim, president of Brazil's Tourism Operators Association. Georges Ermakoff, president of the Brazilian airline union, says that plane tickets cost a lot in Brazil because jet-fuel costs are 15% higher than in many other countries. "The fuel has a heavy impact; it's 30% of total costs for the airlines," he says.

International. High fuel costs aren't slowing down BRA. The company will spend $4 million to build a modern hangar in the city of Aracatuba, in Sao Paulo state, where it can conduct maintenance work on two planes simultaneously and warehouse four others. Another $8 million will finance projects designed to kick-start an international business. By 2007, BRA plans to fly regularly to Portugal, Spain, the United Kingdom, Italy and the Netherlands, as well as other countries in South America. In five years, the company wants to operate 50 planes and fly 10 million passengers per year.

Business Services Industry

Magic bus: a new airline promises to fill up Brazil's skies by putting bus passengers into the air

Latin Trade, August, 2005 by Margarida O. Pfeifer

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