Codeshare does not require antitrust regulator’s approval; experts say operation tends to attract attention
05/27/2024
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Partnership will combine the two carriers’ airline networks in Brazil through the codeshare system and involve both companies’ loyalty programs — Foto: Leo Pinheiro/Valor
The cooperation agreement between Azul and Gol announced on Thursday (23) agitated the market, as experts saw the approach as the start of a consolidation process between the companies. On Friday (24), Gol rose 11.9% to R$1.41 on the B3, while Azul soared 5.18% to R$10.36—the biggest appreciation of companies in the benchmark stock index Ibovespa on that day.
The partnership will combine the two carriers’ airline networks in Brazil through the codeshare system and involve both companies’ loyalty programs. Customers purchasing airline tickets included in the codeshare can choose to which program they wish to allocate the points they are entitled to. Azul and Gol carry out around 1,500 flights daily. The agreement will create more than 2,700 travel opportunities with just one connection.
The market says the deal resembles a partnership signed by Latam and Azul in 2020. The agreement was abruptly terminated a year later due to Azul’s attempt to take over Latam after the latter filed for a court-supervised reorganization under Chapter 11 in the United States.
Behind the scenes, Azul is said to be in advanced talks with Gol for a merger. At the first moment, Azul was reportedly willing to acquire Gol. Now, the prevailing view in the market is that the airlines could join forces to create a new firm that would also include Abra—the holding company controlling Gol and Colombia-based Avianca—as a shareholder. It remains unclear who would be the controlling shareholder. Azul is currently controlled by businessman David Neeleman.
The codeshare does not require approval by the Administrative Council for Economic Defense (CADE), as it is regarded as a commercial agreement. However, experts point out that it tends to be handled as a different operation and attract the antitrust regulator’s attention.
Furthermore, the deal has a relevant background, which is the behind-the-scenes’ moves by Gol and Azul toward a possible consolidation. If the agreement is regarded as preparation for a future merger, it could raise a flag at CADE. Azul and Gol declined to comment.
When Latam entered into a codeshare with Azul in the past, Gol asked CADE to apply some type of penalty against the two companies for a practice that could harm consumers. However, the request did not advance as the industry was struggling with the effects of the COVID-19 pandemic.
Experts point out that CADE has the power to request an analysis of the operation although its history shows it did not require prior notification in previous codeshare cases.
The airline industry is under heavy public scrutiny due to the increase in ticket prices and has been in constant attrition with the Brazilian Congress. On May 14, during a hearing before being reappointed as the CADE’s general superintendent, Alexandre Barreto said the antitrust regulator is preparing “a broad investigation” into ticket prices.
In a report, Bradesco BBI analysts pointed out that the current agreement seems to be more robust than the one signed between Azul and Latam in August 2020. The previous agreement did not involve frequent-flyer programs and was limited to 64 domestic flights. The bank also emphasizes that the partnership appears to be the first step to a possible merger.
Itaú BBA expects the deal will benefit Azul as it gives the company access to a larger network connected to its regional operations.
*Por Cristian Favaro — São Paulo
Source: Valor International