International Policy

Brazil's Fliers Are Savoring Deregulation

Fares on some of Brazil's airline routes are being slashed by as much as 60 percent as passengers celebrate the fruits of deregulation and carriers launch their first-ever fare war. Observers call it a real dogfight and the owner of carrier Transbrazil SA says that in 45 years of flying, "I've never seen anything like it."

  • For 30 years, three carriers dominated the cash-cow route between Rio de Janeiro and Sao Paulo, charging about $500 round trip -- until upstart airline TAM SA responded to deregulation with fares of less than $200 and threw the entire cozy arrangement into a tailspin.

  • Entrenched heavyweight Varig SA has responded by offering frequent-flyer miles, reserved seating, a VIP lounge and discounts of 20 percent to 60 percent on all its domestic routes.

  • Transbrazil, which had an operating loss of $140 million last year on revenues of $752 million, worries publicly about its future and blames the fare cuts and says the government is rushing deregulation.

Greater competition is not limited to the airline industry, observers report. Deregulation has affected other Brazilian sectors as well -- including telecommunications, banking, automobiles and petroleum. A Sao Paulo investment banker observes that "the ones losing are the elite who sucked the system dry for so long."

Source: Peter Fritsch, "Brazil is Experiencing Its First Air-Fare War Following Recent Deregulation by Government," Wall Street Journal, May 1, 1998.

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