Too much of a good thing? Brazil's airports are suffering a growth crisis

Images: Wikipedia

One of the countries that has been experiencing sustained growth in the last decade is Brazil. The country's magnificent rates of growth have had its reflection on the aviation sector too and the number of air passengers in Brazil has more than doubled in less than a decade, from 71 million in 2003 to 154 million in 2010. This growth has taken place amidst a total transformation of Brazil's airline sector, that included the demise of what used Brazil's traditionally two largest carriers, Vasp, in 2005, and Varig, that in 2006 got absorbed by GOL, one of the entrants that have managed to take a significant part of Brazil's market. The emergence of Star-Alliance member TAM and low cost carriers GOL and Azul (founded by David Neeleman of JetBlue fame, by the way it is not a coincidence that "azul" is Portuguese for "blue"!) have more than made up for the disappearance of the traditional carriers.

But all this growth is reaching a bottleneck: the country's airport infrastructure. Capacity at Brazil's airports hasn't expanded quite as fast as traffic and the country may be heading for serious turbulence if it does not upgrade its infrastructure before the upcoming World Cup and Olympic Games, due to take place in 2014 and 2016 respectively. There are serious doubts about the capacity of Infraero, the government institution with links to the military, that manages most Brazilian airports, to deliver in the face of such such an important challenge. We will see whether a solution is found, either in the form of more public investment or through the privatisation of some of these airports. In any case, I am sure this is a problem that many countries would like to have right now (just thinking about our series on Spain's empty airports), and a reminder that not everyone is currently in crisis!

Aena goes retro to present its new airport investments in Spain

I was at Madrid's Fitur a few days ago. This is one of the largest tourism trade shows in the World and, as you might imagine, airlines and other aviation-related operators had a strong presence. Aena, the Spanish airport operator had a huge stand where it showcased their current and projected investments at some Spanish airports, such as Santiago de Compostela (SCQ) and Alicante (ALC). The new and projected terminals at these airports where presented with a miniature scale model, but what amazed me the most is the aircraft models they chose to fill them up...a joy for aviation history enthusiasts!...I do not believe we are going to see Lufthansa's Boeing 727 and TWA's Lockheed Superconstellation at Spanish airports anytime soon, though!


Is good old Connie making a comeback? ask Aena!


A nice retro aircraft model, a Lufthansa Boeing 727

Spain's empty airports (V): Burgos

This case is similar to Logroño (see previous post). The historical city of Burgos and its region is not without its tourist attractions, and to be fair, in spite of the economic crisis, Burgos airport (RGS) has shown some modest growth since its inauguration, in 2008. However, it has capacity for 500,000 passengers year, and with only a handful of regular flights, operated by Air Nostrum, to Barcelona, Palma de Mallorca and Paris-Orly, there are serious doubts about its capacity to generate enough demand on the long-term to make it economically viable.

The Spanish government invested €45.6 million on this facility, a figure that might be justified in cases where the airport helps break geographical isolation (it does not seem to be the case here) or brings significant benefits in the form of tourism income and local development. This might be a valid strategy for Burgos, but when taking a closer look at where did the growth in traffic come from, a rather different picture emerges, there have been some new charter flights operating at the airport, but they are flying local people out rather than bringing tourists in! So, in practice, the government is subsidising locals to go spend their money elsewhere...does not look like a sustainable growth strategy to me..

Spain's empty airports (IV): Logroño

The Spanish region of La Rioja is famous worldwide for its great wines and its cellars attract numerous visitors every year, but few get there by plane if we are to judge by the traffic figures at the regional airport Logroño-Agoncillo. The airport was inaugurated in 2003, after an investment of €40 million, and after a few years of growth, peaked in 2007 at 56,000. It has been in falling since then and it currently stands at around 20,000 passengers per year.

There is hardly any regular traffic at the airport, only Air Nostrum operating a regional jet to Madrid-Barajas (MAD), but it is possible that there is not really a critical mass of passengers to sustain more flights, particularly when considering that land transport in the area is quite good (Logroño is in the middle of the Ebro Valley, a major communication line) and Bilbao airport and its much broader choice of flights and frequencies, is 1,5 hours away by car.

In the meantime the airport keeps losing €4,42 million a year, or €220 per passenger, and its debt stands at €52 million.

Spain's empty airports (III): León

In North-West Spain the city of León got a brand-new airport in 1999. There had been an airfield at León for decades, but the inauguration of the new facility and the opening of commercial services at León airport was a significant improvement on the accessibility of this historical city, that tracks its origins back to an old Roman fort, that had traditionally suffered from its remoteness and its distance to the country's main urban centers.

However, I got quite surprised to learn, this autumn, that the airport had just been enlarged. I had a look at the numbers and found out that the Spanish government had invested over €80 million at the airport during the last 6 years. This seems quite a large number taking into account the current amount of passengers the airport is handling, more so when some of the recent investments have been directed at increasing the airport's capacity. For example, LEN is now able to process 580 passengers per hour...but the total number of passengers last year was 94,282, that is around 250 passengers per day! And looking at the route network available from the airport it looks as if this traffic is well distributed along the year, in other words, it does not seem there are extreme demand peaks that require all this extra capacity (most routes are done by Air Nostrum using regional jets).

The expansion programme was implemented with an expectation of 500,000 passengers per year in 2012...but since reaching a peak of 160,000 passengers in 2007, traffic has only decreased since then. The fact that León is going to be connected to the Spanish high speed rail network in 2012, and it will then be within 2 hours travel time of Madrid by train will not help raise the airport's traffic figures...

George Soros invests in Flybe as the British regional airline readies its expansion plans

Pointing upwards! (Picture: Wikipedia)

What is the fastest way to become a millionaire? Start as a billionaire and invest in an airline....! but it looks like billionaire George Soros would rather disagree!

Well, true, a £7M. investment in Flybe is not even pocket money for the famous tycoon (it will buy him around 3.4% of the company), however I find it significant that such an experienced and powerful investor, that managed to sink the pound sterling in 1992, is backing Flybe at this time, when ambitious expansion plans are under way at the British regional airline. Flybe has just floated in the stockmarket and plans to use the proceeds of the flotation to double its fleet and possibly open new bases in Europe or acquire another regional airline, another sign of confidence in the future, is that Flybe's current owners are not planning to cash their money in, at least not in the short term.

There is no lack of examples to support the old joke about the dubious profitability of airline investment (even Warren Buffett got caught on this one!), however, it is remarkable how Flybe has been able to build its niche business in a market strongly dominated by behemoths like Ryanair, Easyjet and BA, or I should say, precisely by being able to exploit the markets gaps these airlines were leaving: as opposed to BA and its Heathrow focus, Flybe has an extensive regional network, as opposed to Ryanair and Easyjet, Flybe caters mainly to the business traveller...will it be able to replicate its business model in the continent? in any case, it looks like we are going to get used to hearing about Flybe more often, as the British regional champion is onto something big!