Being a Monopoly Contributed to Brazil’s Varig Airline’s Demise

If Varig is eventually declared bankrupt, passengers of the airline will suffer at least two unpleasant consequences within 20-30 days.

According to Ronaldo Seroa da Motta, coordinator of Market and Regulatory Studies at the Institute of Applied Economic Research (IPEA), the first will be the lack of accommodations on domestic flights for people who have already purchased tickets on Varig, "because there will not be enough seats available immediately on other airlines."

The other problem has to do with the World Soccer Cup. Motta pointed out that "people who have already bought tickets to Germany may suffer some difficulty finding seats on other flights headed there, and some will be surely be hurt financially."

He suggested planning as the way to minimize the problems that will occur in the transitional period, "which is what the government appears to be doing, with a concern for gathering information in order for it to be handled properly."

The economist said he believes that the other airlines will also be affected, trying to organize themselves to cover Varig’s routes. Despite the possible decrease in the number of flights offered, he declared his confidence in the tendency for the market to make room for new companies, including foreign ones.

Motta also said that he understands the concern that exists worldwide to avoid domination by a foreign company, because airlines are seen as an important part of a country’s defensive and offensive infrastructure at times when national sovereignty is threatened, such as in cases of war.

"Thus, it is important for local citizens to direct or own these companies," he affirmed, adding that, otherwise, nothing would prevent an intervention.

In the economist’s view, apart from these aspects, opening the airline market to international companies does not represent a problem.

"There would be more competition." In the last ten years, according to Motta, the airline sector in Brazil has evolved from a system dominated by a single firm, in other words, a monopoly, to a more competitive system.

"It is precisely this condition of possessing a monopoly that makes companies inefficient," he emphasized.

He explained that since they had been participating in the market for over 30 years, these companies had a large contingent of their workforce on the verge of retirement, posing an enormous actuarial (retirement benefits) risk.

The new companies, on the other hand, have less burdensome pension plans, allowing their costs "to be lower, for this very reason."

Agência Brasil

Tags:

Ads

You May Also Like

War Weary

Brazil is a strong test of the barriers to Third World military-industrial growth. Unable ...

Geisy, Brazil’s Miniskirt Student, Should Try US College Next Year

Geisy Arruda made history this week in Brazil, but for all the wrong reasons. ...

Brazil Trade Surplus Doubles

Direct foreign investments in Brazil have risen sharply in October and should reach US$ ...

Despite Sales Increase Brazil’s Chicken Exporters Are Losing Money

Brazilian chicken exports yielded US$ 2.145 billion in the first half of this year, ...

Don’t Expect Brazil’s Ultra-Deep Sea Oil Flowing Before 2013

Sergio Gabrielli, the CEO of Brazil's state-controlled oil and gas multinational Petrobras said that ...

Brazilians Flying Overseas Learn How to Avoid Bird Flu

Beginning today, airplane passengers leaving Brazil for areas where bird flu has occurred will ...

Paraguay Wants at Least US$ 2 Billion from Brazil for Itaipu Energy

Brazil is expected to pay its South American neighbor, Paraguay, a bigger share of ...

Where the Sun Never Sets

The Northeast is a land of contrasts: the very rich and the very poor, ...

Egypt Wooing Brazilian Airplanes

Inaugurated by President Hosni Mubarak, who is, himself, an aviator, the first edition of ...

Brazilian Government Becomes Sponsor of Indy Races

Brazil's trade promotion agency, APEX-Brasil's, decision to sponsor the top ethanol-powered auto racing category, ...