It is tough to effectively launch an airline and set it in a position to be successful. The latest example of the challenges of starting a carrier can be seen in Brazil, where a once-promising startup has folded (temporarily, according to the management) operations after just six months. So, let’s take a look at Brazil’s Itapemirim Transportes Aéreos debacle.
Itapemirim Transportes Aéreos was a carrier set up by ground transportation giant Itapemirim Group. This is a passenger road transport company founded in 1953 that has been able to become one of South America’s largest enterprises. Nonetheless, it filed for bankruptcy protection in 2016. The judicial reorganization plan was approved by the court in 2019, although it has not been complied with, according to local media.
In the meantime, the company’s management decided to relaunch an airline, Itapemirim Transportes Aéreos (or simply, ITA, not to be confused with the Italian ITA Airways). In the nineties, Itapemirim Group had Itapemirim Cargo, a small freighter company with Boeing 727 aircraft.
Back in February 2020, Itapemirim Group announced a $500 million investment from a UAE fund to launch the airline. The plan was to start the new Itapemirim Transportes Aéreos with ten Airbus A320 aircraft and connect Brazil through Brasília and São Paulo. Itapemirim Transportes Aéreos officially launched operations on June 29 and quickly became Brazil’s fifth-largest domestic carrier.
Some things were going in the right direction
Launching a new airline is not an easy task in a country dominated by LATAM, GOL, and Azul. Itapemirim Transportes Aéreos carried 355.167 passengers, operating 3.665 departures between June and November. The airline had an everage 59.8 percent load factor throughout its brief history.
Nonetheless, Itapemirim increased its operations throughout the year. In July, the airline had 423 departures and 19.044 passengers on board with a fleet of four aircraft at the time, according to data provided by Brazil’s ANAC and the airline press releases. During the first month, it had a load factor of 27.7 percent. By November, the airline had 1.305 departures and 119.093 passengers. Its load factor had increased to 56.3 percent (not an excellent load factor, but not particularly bad if we look at the current context).
Itapemirim’s average price ticket was 362.74 reais (approximately $64). The average price ticket in Brazil in 2021 was 464.23 reais. Itapemirim’s average yield was 0.36 reais per kilometer, while overall, it was 0.43 reais per kilometer, according to ANAC.
What went wrong?
It was unexpected when Itapemirim announced it was temporarily ceasing operations on December 17. The Brazilian ground handler company Orbital said that no one saw Itapemirim’s halt coming. Orbital’s CEO, Rubens Filho, said in an interview with Estadao:
“We weren’t expecting the company to stop. We were accompanying ITA and its operations, and there was an ongoing recovery. ITA itself was improving its load factors because it was becoming a more known company, so more people were buying tickets with the airline.”
There are two contributing factors to Itapemirim’s cease of operations: lousy planning and lack of financial resources. The airline sold more tickets than available seats, forcing ANAC to monitor the issue weekly. As reported by local media, ANAC informed that:
“Even before the first flight carried out by Itapemirim Transportes Aéreos, a gap was identified between the number of flights offered and the company’s actual processing capacity.”
Additionally, Itapemirim delayed the payment of wages and benefits during the first month of operations. The National Aeronauts Union (SNA) filed a class action in court to address this issue.
But the biggest issue was just recently highlighted by Itapemirim’s first CEO, Tiago Senna. In an interview with a local media outlet, he pointed out that the company never received the $500 million investment from the UAE. Despite the lack of cash, the airline continued with its plans and launched flights accordingly.
Currently, the future of Itapemirim Transportes Aéreos (and the whole Group) is not promising. On December 29, Brazilian prosecutor Nilton Belli Filho asked the Court to declare the bankruptcy of Viação Itapemirim and Itapemirim Transportes Aéreos, plus blocking the assets of Sidnei Piva de Jesus, owner of the companies. The Public Ministry of São Paulo wants to add Itapemirim Transportes Aéreos to the bankruptcy process of Itapemirim Group.