Why have you come to Brasil?
I love Brasil. I was born here and I’m proud to be a Brazilian citizen. People know me best as the founder and CEO of JetBlue Airways. Though I have spent much of my life building companies in North America, I have been waiting for the right opportunity and the right time to come back. This new airline is that opportunity and the time is now.
Can the Brasilian market accommodate a third airline?
Absolutely. Despite significant fare increases recently, Brazilian passenger traffic grew nearly 12% in the last year. The macroeconomic conditions make us confident this growth will continue, probably even accelerate. Stable inflation, strong currency and growing availability of consumer credit also help.
At the same time, the Brazilian airline market has evolved into a duopoly, with GOL and TAM dominating over 90% of the domestic airline market. The Brazilian airline market is overpriced and underserved. The introduction of a well capitalized, high quality airline competitor will significantly improve the environment and market conditions for everyone.
GOL and TAM have lowered their costs by employing larger average aircraft sizes and putting in as many seats as they could possibly fit. To be profitable, they depend on “hub and spoke” networks, based in Sao Paulo, Rio de Janeiro and Brasilia. They concentrate traffic in their hubs, forcing passengers to accept circuitous, lengthy, and inconvenient routings to fly between most Brasilian cities.
Those inconvenient services have constrained the potential growth of the Brazilian airline market. Because it is so inconvenient to fly between many major Brazilian cities people just don’t do it.
By offering new service we intend to create more customers and stimulate demand overall. We intend to leverage a smaller aircraft to profitably offer nonstop service in smaller O&D markets. Smaller planes will also allow us to provide greater frequency. In our judgment, inconvenience has produced a real market need. We intend to satisfy that need by providing frequent, nonstop service in currently underserved markets.
How is the Brazilian airline market different from the U.S.?
Average airfares here in Brasil are over 50% higher than they are in the United States over an equivalent distance. In Brasil, approximately 80% of domestic air travel is for business, with approximately 20% leisure. In the United States, this ratio is reversed; In Brazil, less than 250 commercial jet aircraft serve approximately 190 million people. In the United States, over 5,000 aircraft serve less than 300 million people. Adjusted for average per capita GDP, if Brasilans flew with the same frequency as Americans, passenger traffic in Brazil would be over four times greater than it is today (GDP per capita is defined by World Bank 2003 report, using PPP method, adjusted to US per capita GDP. Source: Embraer)
In the United States, airlines have passed lower costs through to consumers in the form of lower fare, which has resulted in significant demand stimulation for air travel In Brasil, nearly 150 million passengers, primarily leisure customers, travel via long distance bus. We believe stimulation of leisure air demand represents a substantial opportunity not only for us, but for GOL and TAM.
In the United States, business customers have the ability to complete a business trip in one day. Due to circuitous routings and lack of non-stop service, this isn’t possible in many Brazilian city pairs. By offering more direct and more frequent service that exists today, we believe that that business demand can be stimulated as well.
Why did you choose the Embraer 195?
JetBlue was the launch customer and remains the largest operator of the Embraer 190. When we ordered the 190 we knew it was going to be a game changing airplane. It offered operating costs per seat very close to the Airbus A320 with a third fewer seats. After barely 18 months in service, this brand new fleet type is currently providing dispatch reliability of 99.8% – equivalent to that of the Airbus A320.
Perhaps most importantly, the Embraer 195 is the most technologically sophisticated aircraft in its class, and with the configuration we have chosen which utilizes dual heads up display, it will also be one of the safest. In fact, we will be the only commercial airline in the world which utilizes dual heads up display for 100% of its fleet.
The E195 is the larger version of the E190, offering 18% more seats with roughly 6% higher trip (we need to check this with EMB) costs than the E190. With similar unit economics to the 190 seat Boeing and Airbus aircraft operated by TAM and GOL, it has a substantially lower trip cost. We believe it is the perfect aircraft for the Brazilian domestic market.
A recent analysis from Itau suggested that you will have difficulty capturing more than 6% of the Brazilian market? Does this concern you?
Some financial analysts in the US said the same thing about about JetBlue when we started. Five years later, we were the largest airline operating at JFK, which is the largest airport, in the largest airline market in the world. At JetBlue, when someone flew us once, they almost always returned. It is our goal to provide the same quality customer service such that we will become the preferred choice in airlines in Brazil.
We believe there’s still a huge market potential to be explored. Our plan is to grow overall demand by stimulating the leisure market with lower prices and improving convenience for business customers with nonstop service and more frequent flights. As a result, our success is not dependent on stealing existing traffic from Gol and TAM. In fact, because we fully expect them to match our pricing, we believe our competitors will benefit as well from market stimulation.
We aim to bring comfort and convenience back into this market. By offering a superior product with an affordable price, we are positive we can succeed here in Brazil.
Are you going to use the same business model as J jetBlue?
The Basic principles will be common, because they are universal, not strictly American. We intend to hire customer service people who are focused on consistently delivering an outstanding customer experience. who actually LIKE serving customers. We will reinforce a strong customer service culture with recurrent training and frequent communication. Our crewmembers will care for our customers because they will care about our company. They will know that excellent customer service is key to the company’s success and therefore their own. success.
Leveraging technology to permit customer self-service and easy access will drive down the costs, yet giving us the tools to deliver a consistently high level of services. Also we will focus on safety, just like all the airlines I’ve been involved with. We will employ the most modern airplanes, in order to have the safest operation for customers, crewmembers – both on the ground and in the air. That’s one of the reasons why Jetblue was voted “Best Airline In America” for the past 6 years.
Will the airline offer two classes of service?
Every seat on our aircraft will offer a level of comfort and service that is better than exists in the market today. Arguably, with a 2x2 configuration with no middle seats, every customer will receive business class comfort at regular economy prices.
What is the relationship between your new airline here and JetBlue? Will you continue to be chairman of JetBlue?
None. This company is Brazilian, created and run by Brazilian executives. There will be no relationship whatsoever between the two airlines. I am still non-executive chairman of JetBlue, and hold a substantial equity position in that airline but am no longer involved in it’s day to day management. There will be no relationship whatsoever between the two airlines. I will focus 100% of my time into building this new airline.
Where will your base of operations be?
The company’s headquarters will be here in Sao Paulo. Operationally, we do not intend to operate a hub and spoke network like either GOL and TAM, who have chosen to focusing the majority of our flight activity at a few airports. Though we are hopeful that we may be able to gain access to slot restricted airports like Guarulhos, Congonhas or Santos Dumont, our strategy does not depend on it. Our goal is to serve airports that are currently underserved.
What cities are you going to fly to?
We intend to fly to most major cities in Brazil within 5 years, offering them multiple daily frequent, direct service to multiple destinations. We aim to unite them with non-stop services, allowing people living outside of Rio, and São Paulo, and Brasilia which serve as hubs for TAM and GOL, an amazingly low percentage of major Brazilian cities are linked by nonstop air service. In every city we serve, we intend to provide superior depth as well as breadth of service. Not only do we intend to fly more frequently, we plan to serve a broader range of nonstop destinations from each city in our network. Rather than focusing traffic in a few over-congested hubs, we intend to create one-stop and connection opportunities in every city we serve, allowing clients do their business and return to their cities of origin in the same day. That’s virtually impossible today due to the high concentration of traffic around the central airports of Rio and São Paulo.
Who is on your management team?
So far I am Chairman and CEO. In developing a winning business plan, securing financing, and negotiating a complex aircraft deal, I have been assisted by an exceptionally talented group of airline executives. Trey Urbahn, former Chief Commercial Officer at JetBlue, and Gerald Lee, former VP, Business Development, have been instrumental in building the foundation for our new venture. We brought a group of highly competent airline executives from the US. Going forward, their role is to coach the group of Brazilian executives we are actively recruiting today. We are aggressively recruiting a Brazilian management team.
We are pleased that Gianfranco (Panda) Beting, has joined our team as was the first to be hired and is our Marketing Director. In the coming weeks, we will be announcing other key additions to our Brazilian executive team. Soon we will be announcing other names, including the airline’s president, chief operating officer, and other key senior management hires. Our goal is to build a World Class airline; to do that we will tap into the best resources Brazil has to offer, supplemented, at least initially, by a core team of American airline experts.
What will your onboard service be like?
It will be superior that what currently is offered in this market. The Embraer 195 has a 2 by 2 configuration, thus eliminating the dreaded middle seat. That translates into more comfort. We’ll offer 31 inches of pitch, two more than most of our competitors. We’ll have all seats in leather, another plus. We’ll Rather than trying offer full meals, we intend to offer a broad and generous selection of snack choices as well as complete beverage service. have signature snacks that passengers will pick from a basket, allowing them to choose and help themselves. We’ll give our customers choices. We will put them in command.
Like JetBlue, are you planning of offering live TV onboard?
Yes, we plan to offer Live TV in all seats. I was involved in the creation of this company, on which I still have a participation. We will be the first in South America to offer this live television. Our analysis tells us that Brasilians are particularly fond of television. People will be able to see the soccer games and the novelas at 36 thousand feet.
Who are your investors?
We have raised $US 150 million from mix of investors representing both US, as well as Brazilian private equity capital.
What are your long term fleet plans?
We aim to start with three airplanes in early 2009. Thereafter, we will receive a new aircraft approximately every month for the next three years. As has been indicated by our order with Embraer today, we expect to be flying as may as 76 planes in 5 years.
Are you concerned about the competitive reaction of GOL and TAM?
We don’t fear them. We respect them and recognize that they will fight hard to defend their market positions. And it’s natural they will do everything to protect their turf, the participation that they hardly conquered. Both GOL and TAM are highly competent, professionally run competitors with deep pockets. Rather than responding emotionally to our market entry, we expect them to react thoughtfully and in the best interests of their shareholders. Our two main competitors are competent, they have deep pockets, are professionally run and respected in this market. Our strategy will focus on opportunities that are appropriate for our smaller aircraft size; providing high frequency to markets where point-to-point service doesn’t exist today.
Our core team has experience in the most competitive airline market-- on the planet, the United States. We also know how to run a professional airline, and the record shows that we have been successful in the past in serving our shareholders, our employees, as well as our customers.
We intend to enter the Brasilian market cautiously, but deliberately. We do not intend to “buy” market share with overly aggressive, across the board discountingrock-bottom pricing, that might ultimately would precipitate a destructive fare war. We’ve seen battle before, wars that ultimately we won. Our strategy is to compete with high quality service, low costs, and effective customer segmentation and communication, bringing back people that had giving up flying. And also, people that couldn’t afford to fly. We don’t intend to steal portions of the cake from our competitors. Our aim is to make a bigger cake, where everyone can fly. And every airline can profit. We are confident that we can substantially grow overall demand for air travel in Brazil, making us less dependent on taking customers away from our competitors than on creating new ones.
What is your distribution strategy? Do you plan on using travel agents?
We intend to create an easy to use, fully transactional consumer website that will serve as our primary customer facing distribution channel. Not only is this the lowest cost means of transacting with our customers, it is also the most effective since it offers the opportunity of a one-on-one dialogue with our consumer in an environment that we manage. Given rapidly growing consumer internet penetration here in Brasil, we expect a substantial portion least 50% of our sales will come directly from consumers via our website.
Travel agencies are to be an important distribution channel for airline tickets in Brazil and we intend to embrace them. Because travel agencies are disproportionately important in the corporate segment, the higher cost of distribution through this channel should be substantially offset by higher prices.
As we consider the company’s specific distribution policies, we will be guided by the principle of paying for or /discounting relative to value received. It’s not just about cost, it’s about the revenue.
Do you plan to form alliances with other airlines?
Our distribution strategy includes participation in major GDSs. This will facilitate our presence in the major GDSs will allow a possible integration in interline connectivity as well as potential marketing alliances with other carriers, Brasilians and/or from other countries.
How do you see the entrance of other new competitors in the Brazilian market?
Its something we see naturally. We don’t fear competition. We embrace it. We were very, very successful into the most competitive market in the World, the US market. We don’t fear competition. In Brazil as in the US, the emergence of low cost competition (GOL) forced incumbents to lower their costs (TAM). Those who couldn’t ultimately failed (TransBrasil, VASP, old Varig). The result today is a level playing field; potential new entrants cannot produce airline seats at substantially lower costs than incumbents. It’s the only way to remain sharp, stimulated and in focus. We love to compete. I am a competitive person and this intensity is part of the aviation world since its inception.
Are you concerned about airport congestion and other infrastructure constraints here in Brasil?
Not at all. Brazil’s airport infrastructure is constrained in three cities: São Paulo, Brasília, and Rio de Janeiro. Not coincidentally, these are the same airports where GOL and TAM have focused their flight activity by creating hubs. Congestion has defined an opportunity for us: Avoid forcing people to stop or make connections at congested airports and fly them directly. We’ll built our strategy around this fact. We’ll be able to design our route system taking that factor into consideration. Brazil’s such a huge country. There are a lot of potential to be explored outside the congested airports in the southeast region.
Do you plan on lowering airfares here in Brasil?
Yes we do, by all means. Airfares in Brazil are poorly segmented. As a result, airline load factors are too low and fares, particularly leisure fares, are too high. By delivering targeted discounts to customer segments that are either travelling by other means or not at all, we know we can significantly grow air travel demand. We expect to introduce lower fares into the market, we aren’t counting on a price advantage to move share. We fully expect that our competitors will match each and every low airfare we bring to this market in 15 minutes after we introduce it. Then, the quality of our services will make the difference, we hope. The utilization of the latest technology will allow us to deliver more airline for the buck. And the advanced comfortable E-Jets will be paramount on our strategy. They will be the most comfortable airplanes in this Market. Even Ministro Jobim would approve the personal space!
What is your target market? Business or leisure travelers?
Both, because we need both. Business and leisure travelers are complementary segments.
Business customers need convenience; Leisure customers need price. Leisure customers increase overall demand allowing airlines to produce more supply (frequency). By paying higher fares, less price sensitive business customers allow leisure customers to pay less.
Today, business travelers in Brazil suffer because the leisure market is underdeveloped: they suffer from indirect routings and lack of frequency because the traffic base is too small. Leisure customers suffer because leisure fares are too high; they vote with their feet and either travel by bus or stay home.
Segmented pricing maximizes revenue by matching the level of discount to the underlying price elasticity of the customer. Business customers pay more; leisure flyers pay less. Not only are more customers served, more revenues are produced.
With all due respect, we believe we will offer something for everyone. Convenience, quality and multiple option for the business traveler. Low-fares and direct, nonstop services to VFRs and tourists. We aim to be the airline for all Brazilians, both in geographical as well as in demographical terms.
How will significant increases in fuel cost effect your operations?
Our E-Jets are lighter, smaller, all brand-new airplanes. They are powered high bypass GE engines incorporating state of the art technology. As a result, our fuel burn per seat is equivalent to much larger current generation Boeing and Airbus aircraft. On a per trip basis, our fuel burn is significantly lower. proven machines, economical tools that will make us less vulnerable to fuel hikes than most of our competitors.
How will you attract qualified pilots?
We’ll offer competitive wages plus better working conditions. People work not only for the money. They also seek job satisfaction and quality of life. We intend to attract qualified pilots by providing all of these things. For example, we are exploring a novel concept: Virtual Bases of operations, spread throughout Brasil. The aim is quite simple: offer higher productivity while allowing our pilots more free time with their families by beginning and ending their duty time in their chosen city of residence. We also plan to present their working schedules well in advance, thus creating a situation where they can plan their lives with more time. Finally, And, yes, the high-tech Embraer 195 will also help attracct them. They will be proud to be flying one of the most advanced plane in the skies, designed and built in Brazil.
Are you going to offer a frequent flyer program?
Our sense is that our customers will want a program that rewards them for our loyalty. On the other hand, we are wary of adding costs to our product that may ultimately require higher ticket prices. In the coming months we intend to have an ongoing dialogue with Brasilian airline consumers about what matters to them and what doesn’t. If you see us offer a loyalty program, it will be because our consumers asked for it.
Are you buying a Brasilian airline in order to obtain a “CHETA” - Brasilian Operational Certificate?
No. We studied this possibility, but then we decided to go along and do it ourselves.
Are you concerned about obtaining all of the necessary government approvals to operate here in Brasil?
No. We are confident that the Brazilian authorities will provide us with equal opportunities to compete. We have been extremely well impressed by everyone we met so far.
Have you met with any government officials regarding your startup?
Yes, we did courtesy visits to ANAC. We met with dona Solange Vieira, ANAC’s presidente, to present our credentials. But we still need to meet most of the authorities, like Infraero, for instance. And Ministro Jobim, of course.
Do you plan on flying internationally?
Possibly in about 3 to 4 years after we have established a credible presence domestically here in Brasil. After that, we would consider South American regional markets most probably.
Why voceescolhe?
We want to bring novel ideas in all areas and marketing is one of them. The idea really is to offer our customers options. We will build our airline around the wishes and necessities of our customer customers. The best way to do this is to facilitate an ongoing dialogue with them. If we invite them to express themselves and we are smart enough to listen, we can create a product experience that is uniquely responsive to our customer’s needs. To prove this, we’ll invite people to create the name, define brand aspects, vote for the uniforms and so on. We aim to be interactive with the market, to carefully listen and provide what they want. It’s easier and more effective to provide a service that reflects clearly what the market wants.
How will you get Brazilian consumers to help you choose the name of your airline?
Through the website www.voceescolhe.com.br we’ll invite people to create 5 names. Then, we’ll let them vote and pick the best name for the airline. The first to log in the winning name will receive a lifetime pass to fly for free with a companion. The first 1000 that vote on that name also will receive a prize in the form of two free air tickets anywhere we fly. From there, we will interact with the market, allowing people to choose the airline’s paint job, uniforms, creating names, choosing product differentials and so on. In short, we want to be the airline that the Brazilian public chose.
Will you offer hot meals?
Probably not, based on our initial research which tells us consumers think airline food stinks. In our ongoing dialogue with the Brasilian consumer via voceescolhe, we intend to ask them about the importance of food/snack choices and beverages. I can tell you for certain that we are not going to let people go hungry.
Who is going to maintain your fleet?
Who better than the people who built the airplanes? We expect to leverage off of our proximity to Embraer in developing our MX program.
I want to work for the new airline. Are you hiring?
Absolutely. Among the important features of voceescolhe is a “work here” section wherein anyone can submit their credentials for possible employment with our company. We’re looking for motivated, hard working, individuals who can grow with us. If this might be you, we encourage you to visit our website.