The Great Brazilian Bust: A meltdown of epic proportions is underway in Brazil. Is there any hope for a recovery?

Grab a tissue. This is a sad story.

On March 3, 2011, the Brazilian government was feeling triumphant. Like almost all the world’s economies, Brazil struggled in 2009 due to the global financial crisis, interrupting a multi-year streak of strong expansion. But on that March day in 2011, officials erased fears that the downturn might last long. On the contrary, they announced, GDP in 2010 had roared back with the thrust of an A380’s engine, growing nearly 8%— the fastest annual growth for Brazil’s economy in almost a quarter century.

Naturally, the country’s airlines loved it. Gol, Brazil’s largest domestic carrier, earned a double-digit 11% operating margin in 2010. Its rival TAM was more exposed to the then-developing eurozone crisis and the still-sluggish U.S. market. But it managed a respectable 6% operating margin. A new airline called Azul, launched in late 2008, was off to a flying start. According to Brazil’s state-owned airport company Infraero, air traffic in 2010 jumped 13% y/y and was up a stunning 45% from just four years earlier.

But before long, the good times began to unravel. Already by late 2011, Brazil’s currency, unusually strong in the preceding years, began to weaken. Depreciation then accelerated in 2012, which suddenly became a nightmare year for Brazilian carriers. Not only were their U.S. dollar costs now inflated, but airport fees in the country rose sharply, Azul and Avianca Brasil rapidly expanded capacity, fuel prices remained high and economic growth fell to less than 2%. Gol, for one, suffered a catastrophic negative 9% operating margin in 2012, forcing it to cut capacity and jobs.

But at least the economy wasn’t shrinking, thanks to still-high prices for Brazil’s many commodity exports, including oil. But that party, alas, would end too. By mid-2014, the current commodity bust was underway, putting added pressure on the Brazilian currency and—by extension—Brazilian airlines. Adding to their woes: The FIFA World Cup that summer, which attracted lots of visitors to host cities around the country but kept business travelers grounded.

And then things got even worse. In 2015, currency depreciation again accelerated. By the end of the year, one U.S. dollar could buy almost four reais, compared to less than two five years earlier. Inflation spiked along…

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