Cheaper Skies.

Upstart discount airline shakes up Brazil's airline industry

FEW EXECUTIVES AT AGE 32 RUN AN airline and shape the future of air travel in a nation the size of Brazil. But Constantino de Oliveiro Jr. is doing just that.

Outside his second-floor office off the Anchieta motorway in Sao Paulo, local and long-distance buses roar in and out all day, a constant reminder of the lucrative business his father founded nearly 50 years ago. Grupo Aurea is one of Brazil's largest nationwide transport companies, with 6,000 buses and annual revenues of around US$500 million. But de Oliveiro's sights are not on Brazils highways. They're on its open skies.

In January, he launched Gol Transportes Aereos, the nation's first low-cost, low-fare airline modeled after Dallas-based Southwest Airlines and Britain's EasyJet. Gol is the most successful of a wave of start-up airlines promising to make air travel more accessible to millions of Brazilians who could never before afford to fly.

"It is high time someone started up a discount airline in Brazil," says Bob Booth, president of Miami-based Aviation Management Services. "Air fares were very high there."

Discount air travel is a new concept in Brazil, where airlines have traditionally catered to upscale customers.

Gol is not the only discount airline to challenge the big four. At least three other carriers have grabbed market share since aviation authorities deregulated air fares in 1998, allowing charter airlines to sell tickets on the retail market. The Civil Aviation Authority is currently processing requests for 11 more airlines, including at least one more domestic passenger airline.

Last year's joint study by Brazil's Civil Aviation Authority (DAC) and the Finance Ministry's Department of Economic Studies found "tickets were more expensive in Brazil than in other major markets due to a lack of competition.

The company's name--a good choice in a nation obsessed by soccer--is stamped in bright orange letters on the side of each plane. Inside the aircraft, forget about a hot lunch or a whisky on the rocks. Onboard service is bare bones. Flight attendants and ground personnel dress casually in T-shirts. Ticketing is entirely electronic, mostly by Internet and telephone. There are no assigned seats. There's no first class.

Gol's marketing research concludes that there are 25 million middle class Brazilians who might fly regularly if fares were lowez "I have no doubt there is demand for a discount airline," says Jose Cabs Martinelli, a Sao Paulo-based aviation consultant. "There is room for several Gols."

Today, only 5 million Brazilians out of a population of 170 million fly on a regular basis. Gol currently operates six Boeing 737-700 aircraft 52 times a day to nine major cities--Sao Paulo, Rio de Janeiro, Salvador, Porto Alegre, Belo Horizonte, Florianopolis, Brasilia, Campinas and Recife. In May, a seventh plane was slated to join the fleet.

Gol banks on its customers snapping up fares that come in 20% to 50% below those of the four leading airlines, yang, TAM, Vasp and TransBrasil now account for 95% of the Brazilian market.

While yang charges $210 for a round-trip ticket from Sao Paulo to Rio, Gol's fare runs $75 to $100. TAM charges $547 for a ticket from Salvador to Florianopolis; a Gol ticket costs $344.

"Of course I will fly more often," says Jose Carlos Souza, standing at the Gol check-in counter in Sao Paulo. "Who wouldn't?"

Secret to success. Low fares fill Gol's planes but they make profits harder to achieve. De Oliveiro says the trick is to keep a lid on the payroll. He has only 100 employees per airplane, compared to the region's average 140 to 150. The high $300,000-per-month cost of leasing the Boeing aircrafts is balanced out by the planes fuel efficiency and low maintenance costs. Gol started hitting its target--to fly 120,000 passengers per month--in the first months of this year At that rate, equivalent to an average passenger load of 60%, de Oliveiro says he'll see profit in about three years.

"He's got the right, low-cost strategy. Now, he needs to ensure high aircraft utilization," says Booth.