SAO PAULO (Reuters) - JetBlue Airways (JBLU.O) founder David Neeleman unveiled plans on Thursday for a new low-cost airline in Brazil.
The carrier, still unnamed, will start with a fleet of three Embraer 195 jets made by the Brazilian manufacturer (EMBR3.SA)(ERJ.N) and should take to the skies at the beginning of 2009, Neeleman said at a news conference in Sao Paulo.
After three years, the airline expects to add one airplane a month to its fleet and have a total 76 aircraft after five years.
Like JetBlue, the U.S. discount carrier that Neeleman founded in 1998, the new Brazilian airline will offer low fares and use a point-to-point route structure that flies travelers from one city to another without layovers.
The new carrier will face stiff competition from TAM Linhas Aereas (TAMM4.SA)(TAM.N) and Gol Linhas Aereas (GOLL4.SA) (GOL.N), which together command almost 90 percent of Brazil's domestic aviation market.
But with the Brazilian economy booming and air travel expanding annually at a double-digit pace, Neeleman is betting that there is plenty of room for a new player in a market where travelers have few options.
Neeleman, 48, has a long history of shaking up the airline industry in the United States. He got his start selling package tours to Hawaii as a college student before co-founding discount carrier Morris Air in 1984.
In 1993, he sold Morris to Southwest Airlines (LUV.N) for $22 million in stock. Five years later he started JetBlue, whose low-cost business model and customer perks such as live television and leather seats helped redefine air travel.
Because he was born in Brazil, Neeleman is exempt from a Brazilian law that caps foreign ownership of domestic airlines at 20 percent. He was raised in the United States but returned to Brazil as a Mormon missionary, an experience that helped him polish his Portuguese.
Last May, Neeleman was ousted as JetBlue's chief executive after an embarrassing service meltdown that left thousands of passengers stranded and cost the airline more than $30 million. Since then, he has served as nonexecutive chairman.
(Reporting by Todd Benson, writing by Elzio Barreto)
I'm not sure whether this news is all good, all bad, or a combination of both. On the one hand, Neeleman obviously sees an opportunity to get into a booming new market for low cost air travel. On the other hand, another low cost carrier will certainly create more competition. In any case, it will take some time to get up and running (or flying, as the case may be.) Given the Brasilian propensity for creating lifetime employment for paper pushers, it could take a very long time to get a new airline off the ground. That may be especially true when the principle owners are not Brasilians. In any case, Neeleman is a pretty smart guy (except when he makes planeloads of passengers wait endless hours imprisioned in planes on the ground going nowhere with no food, water, clean toilets, or hope of ever reaching their destinations.) That whole incident was surprisingly big news in Brasil, and Brasilians NEVER forget things like that. Perhaps this will spur the GOL management to get their house in order. Low cost carriers have proliferated elsewhere, and some of them seem to be doing very well in a highly competitive environment. The problem in Brasil is that there are a limited number of airports, and this has created problems for everyone. Population centers tend to be well served already, and the poorer, interior regions don't have enough potential passengers to warrant building new airports to support commercial airlines. In any case, it will be interesting to see what happens. Neeleman is no dummy, and I doubt that he thinks he can knock off an established airline like GOL. He must see an opportunity for growing the airline business in a country that is much healthier, economically, than the U.S. at the moment. Maybe he just likes the climate; no ice storms to contend with.
Keep in mind that Neeleman is a Brazilian citizen, born in Brazil, speaks fluent Portuguese, and is not in any sense a foreigner. He has a clear affinity for Brazil, and has done more for the Brazilian aerospace industry than almost any other person living inside or outside Brazil. TAM and GOL have done their shopping exclusively in USA and Europe, and Neeleman is responsible for the largest cumulative purchases of Embraer aircraft in the world. I would not expect him to have significant regulatory problems getting started, as the Air Force/ANAC/Embraer are all run by the same folks. They owe TAM and GOL nothing, and will likely repay Neeleman's loyalty.
It is definitely true that Jet Blue has a somewhat tarnished reputation for customer service, but TAM has certainly offended far more Brazilians with their incompetance than Jet Blue ever has or could. While GOL has a better reputation for service, it will not likely be easy to compete with Neeleman's television equipped Embraers, amenities GOL does not provide, or cheap prices, which will be far chearper to fly on thinner routes than a 737.
The question I have is what this will do to SPs airport situation, which is already over capacity, with grossly insufficient facilities. I don't understand how these frequencies can be added to the system without taking slots away from competitors like GOL and TAM. In fact, SP's airport infrastructure is so poor, I don't see how anybody can run an efficient airline based in SP. I don't understand how Neeleman can make his model work in SP.