Viva’s plans, the first ultra low cost company to operate in Brazil
Colombian company debuts with flights to Colombia and connections to the United States, Mexico, Peru and the Dominican Republic
In the midst of an adverse scenario, with a global increase in fuel prices and the devaluation of the real against the dollar, the Colombian airline Live starts this Thursday, 23, its operations in Brazil. The debut will be marked by an inaugural flight between Medellín and São Paulo this morning.
It is the first company in the segment ultra low cost operating in the country, same segment of Ryanair, in Europe, and the Spirit, in the United States. The ticket prices of these companies are usually between 25% and 40% below the cost of traditional companies. Already in the segment low cost, the discount percentage varies between 20% and 25%. Examples of companies in the segment low cost are Jetblue, in the United States, and the British EasyJet.
The destinations of the new flights in Brazil will be Miami, Punta Cana, cancun, Mexico City; as well as Colombian beach towns like Cartagena, Santa Marta and San Andres. For Miami and Orlando, round-trip tickets per person start at R$2,300, taking into account the current dollar exchange rate. For Cancún, prices start at R$3,000, and Cartagena, from R$1,700. The estimate of the company’s executives is that the prices are about R$ 1,000 below the value of traditional companies, on average.
All flights first pass through Medellin, Colombia. But this connection, say the executives, lasts less than an hour. The airline will have the capacity to carry 188 passengers per flight.
Initially, Viva will operate three flights a week in the country, on Tuesdays, Thursdays and Sundays, departing from São Paulo International Airport. Félix Antelo, president and CEO of Vivasaid to EXAM IN that the goal is to have daily flights within a year.
Tickets, sold in the country since March, when the wave of the Ômicron variant had already cooled, are being demanded more than expected. “We expected that passengers on the connection to Brazil would represent 20% of the flight, but they are representing 50%”, says Antelo.
Regarding the challenging moment of the Brazilian economy, the executive believes that if he keeps the focus on reducing costs, the result will come. “It will certainly not be in the next nine months, but we believe that the scenario can improve in the second half of 2023. We will be positioned to take advantage of it”.
Asked if the airline has been readjusting prices, Antelo says yes, but that it still manages to maintain the margin that separates it from traditional companies, proportionately. “Everyone has readjusted prices.”
How Viva reduces costs
There are basically three reasons why the airline is able to reduce its costs, according to Antelo: standardized and modern fleet, online sales and personalized fares. Viva’s fleet consists of only one type of aircraft, the Airbus A320neo model, with a maximum of one year of operation. This feature reduces training and equipment costs. Although the use of each aircraft is maximized in the operation (each plane runs 12 hours a day, 25% more than in a traditional company), it is compensated by these efficiencies.
Viva’s basic fares allow each passenger to take only one carry-on bag. Every service is charged additionally. In addition, tickets are mostly sold over the internet, which also helps to reduce costs. If they are hired at the airport, their costs can rise by at least 50%.
Founded 10 years ago, the airline operates 45 domestic routes in Colombia and Peru. But its international expansion is recent: it started in 2021, when it opened four new routes: connecting Medellín with Mexico City, Cancún, Orlando; and Bogotá with Mexico City.
This year it launched flights from Medellin to Buenos Aires, in Argentina, and Punta Cana, in the Dominican Republic. Now, with the operation in Brazil, it has 13 international routes. In the coming years, it plans to open 30 new routes, both national and international.
In 2016, the airline placed an order for 50 planes, which will be delivered by 2025. So far, it has received almost half of them.
Acquisition under approval in Colombia
Viva was acquired two months ago by Avianca, which has just formed the Abra group together with Gol. The operation is still subject to approval by the competition regulator in Colombia, a process that, according to executives, should last between six months and a year.
The Abra group will hold a non-controlling interest, but with 100% of the economic interests in the company. In addition to the three airlines, the group also has an investment in convertible debt equivalent to a minority stake in Chile’s Sky Airline.
Abra’s plan is to create a kind of corporation that will take care of the evolution of the operating companies, through an efficient and combined management of their infrastructure. The goal is to have the largest network of complementary routes in the region, with minimal overlap in markets and, of course, a focus on low-cost operations.
Within the group, airlines will continue their activities independently, in addition to brands and leaders. The difference will only be a new organization of control. The estimated potential of the Abra group for the next few years is revenue of US$ 10 billion, with a fleet expansion that could house 500 aircraft.
Asked if the company should remain in the segment ultra low cost under the management of the new shareholder, Antelo believes so, but points out that there is still no official statement on the strategy. The executive also points out that it is too early to say how much the acquisition may affect the company’s strategy, but he believes that the ‘obsession’ for brand costs is in line with the corporation’s strategy.