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Brazil’s Varig: Something Fishy in the Air


Brazil's Varig: Something Fishy in the Air

Brazilian Varig Airlines, which is in the process of merging with
rival TAM, just announced record losses
of close to US$ 1 billion
in 2002. The company took five months to divulge the bad
news. The
crumbling of the once mighty airline is also
putting a dent on the Brazilian catering sector now.

by:
AB

There is no doubt that the possible merger of two of Brazil biggest air carriers, Varig and TAM, has caused
turbulence in the sector. It has also caused concern. Employees are worried about layoffs. Creditors cringe at the thought that debts
could turn to dust. The public, in general, is upset because of ticket prices. And, now, joining the crowd, catering services.

According to the president of the Brazilian Association of Caterers (Abec), Pedro Orsini, the merger could mean the
end of most on-board catering services. "Although the situation varies from airline to airline, there is a tendency today to
eliminate catering," says Orsini.

Numbers support that supposition. From January 2001 to March of this year, 2,700 jobs disappeared in the catering
industry. Abec estimates that another 5,300 could follow suit if the sector crisis continues.

"A lot is being done to save the airline sector, which employs 25,000 people. Our sector, which employs 20,000, has
been sidelined and forgotten," says Orsini, complaining that although the Varig-TAM merger is intended to save the two
carriers it will eliminate 30,000 jobs in the process. He also points out that government tax revenue has fallen some R$ 76
million because of weak performance in the sector where 33 companies operate.

It is easy to see how the crisis has affected indirect employment in the sector. According to Abec, because of lower
demand on airlines, Sadia has laid off 100 people who prepared food for on-board meals. Catering services account for 5
percent of sales in big food manufacturing firms. Orsini says the tendency is for big caterers to relocate by transferring to other
sectors, such as hotels and frozen foods, a move that could take a few years. Some could migrate to more attractive markets,
such as Asia.

But Orsini says people who think air tickets will be cheaper without catering services will be disappointed. "The cost
of a meal is less than 1 percent of the cost of a ticket," he explains.

Along with Orsini, another caterer, Rodrigo Decerega, is concerned about the Varig-TAM merger. "We have no
idea what the new model will be," he says. Decerega heads Gate Gourmet, one of Brazil’s biggest caterers, which employs
over 1,500 people. "At the moment, with regard to the merger, we are in a watch-and-wait mode," he says.

Meanwhile, on Board the Airlines

For the airlines, the future of the catering industry does not look so catastrophic. A spokesman for TAM says the
merger will not mean any big changes because the two companies standardized their on-board services following joint
operational agreements made back in March of this year. TAM, reports the spokesman, now serves 800,000 meals a month.

However, some carriers, such as Vasp, no longer serve complete meals. Beginning in 2001 they drastically reduced
meal options. Nowadays their passengers get snacks, following a tendency on international carriers. Gol, another Brazilian
domestic carrier, also serves snacks.

Brazilian airlines are reported to be studying direct sales of meals to passengers. In the United States, American
West and Northwest airlines charge up to US$ 10 for a meal. Sales have been good with the cost of a short flight there
running around US$ 90. However, says Orsini, it is doubtful that Brazilians will want to pay extra for meals. "In Brazil an airline
ticket is very expensive. People will not want to pay anything else," says Orsini.

 

This article was released by Agência Brasil (AB), the official press service of the Brazilian government.
Comments are welcome at lucas@radiobras.gov.br

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