The Brazilian Economy Isn’t Growing But Airline Capacity Is

The good news for Brazil’s newly-elected president Jair Bolsonaro: In 2017, the economy grew, after two years of deep contraction. The bad news? Growth was a mere 1%. And this year, according to the IMF, growth will accelerate only slightly.

Why, then, is airline seat capacity in São Paulo growing so fast?

Among the world’s 50 busiest airports by seats this quarter, only two (Moscow Sheremetyevo and Doha) are growing at a faster rate than Guarulhos airport, São Paulo’s chief international gateway—seat counts are up 14%, according to an Airline Weekly analysis of Diio Mi. At the same time, Campinas airport, just outside São Paulo, shows 8% growth. The metro area’s third airport, centrally-situated Congonhas, isn’t growing, but only because it’s capacity constrained. Next quarter, too, features elevated growth at Guarulhos and Campinas, with Q1 seats at the two airports up 14% and 17% y/y, respectively.

Sure enough, 2018 will see the highest level of capacity growth in São Paulo (looking at all three airports combined) since 2011, when the economy was experiencing a red -hot resurgence from the global economic crisis, a resurgence propelled by rising commodity exports. What’s true for São Paulo, moreover, is true for all of Brazil—the country as a whole should see a 5% y/y increase in airport seat capacity this year, after three straight years of shrinking. Declines were particularly sharp in 2016.

Brazil’s four dominant airlines—Gol, LATAM, Azul and Avianca Brasil—have practiced capacity restraint in a way not seen in, say, India or Mexico. Capacity restraint, indeed, played a vital role in rescuing Gol and Azul from financial distress in 2016, even as economic conditions remained tough. In 2017, both airlines swung to double-digit …

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