Colombia’s flag carrier Avianca and Brazil’s GOL airlines are to unite under a new holding group – Abra Group (“Abra”), incorporated in the UK. The group will be second in size only to LATAM airlines. Both airlines have been keen to tout that the partnership will offer low fares to customers, revitalise stale loyalty programmes, increase flight frequencies and add new destinations. The new regional conglomerate, which will have a fleet of more than 250 Airbus 320, Boeing 787 Dreamliner and Boeing 737 aircraft, as well as internal operations in Colombia, Brazil, Central America and Ecuador, is to prioritise connections with destinations throughout the Americas and Europe.
A superintendent with Infraero – a Brazilian airport operator – explained, “The merger is significant for Latin America’s aviation industry. The merger also comes at a time when airline legislation is being updated across multiple jurisdictions which has allowed for the proliferation of lower-cost airlines. Legislative mechanisms are looking to strengthen the market and make it more competitive which should bring prices down.”
“The merger is significant for Latin America’s aviation industry. [It] also comes at a time when airline legislation is being updated across multiple jurisdictions which has allowed for the proliferation of lower-cost airlines.”
A superintendent with Infraero, Brazil
Abra would rival LATAM’s dominant presence in the market but break with its competitor’s single-brand strategy by maintaining each airline subsidiary’s independent management and branding. The Abra announcement comes less than two weeks after Avianca and Viva – a low cost Colombian carrier including its Peruvian subsidiary - announced plans to merge while continuing to operate as separate airlines. Constantino de Oliveira Junior (“de Oliveira”), founder of GOL airlines, will serve as the group’s CEO.
Reputationally, the alliance is a shrewd move for GOL which has been involved in several recent controversies. A former lawyer for Brazil’s National Civil Aviation Agency explained, “GOL has been involved in several legal controversies. In 2016, the public prosecutor’s office of the federal district investigated GOL and its owner, de Oliveira, who allegedly paid about BRL 3 million to the then mayor Eduardo Cunha, to reduce the VAT rate for aviation kerosene from 25% to 12%. This, among other scandals, meant that de Oliveira was removed from the board of directors in 2016, he now returns under the new Abra brand.”
An investment banker agreed, “For many in Brazil’s aviation sector, GOL is synonymous with scandal. Despite being listed, the company has a very strong family culture – many of the company’s top brass exercise strong political influence. That said, the company went through a process of professionalisation, it has market executives at the head of the company who do not have any ties with the family. This, then, greatly mitigates the risks that problems with one or another clan member, if they do occur, will affect the company.”
“For many in Brazil’s aviation sector, GOL is synonymous with scandal. That said, the company went through a process of professionalisation…”
An investment banker, Brazil
More broadly, merging is an increasing trend as Latin American airline groups try to consolidate Covid-induced losses. Much of the regional aviation industry stagnated during the height of the pandemic. Abra’s focus on expanding routes and developing product offerings is an attempt to revitalise the industry domestically and internationally. Most import is the bottom line, to remain competitive, Abra will need to innovate new products and services that will meet the evolving needs of passengers and air cargo customers in an increasingly competitive Latin American air transportation market.