Brazilian Overview Monthly Report - AUG 2019

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MACRO ECONOMY MAIN FACTS...................................................................................................................2 LATAM MACRO...............................................................................................................2 CONFIDENCE INDEX........................................................................................................3 OTHER IMPORTANT DATA...............................................................................................3

TOURISM A SEMESTER OF CHALLENGES........................................................................................4 TOURISM INDICATORS OF THE SEMESTER......................................................................4

CORPORATE TRAVEL CVC CORP.......................................................................................................................5 AVIATION IN THE FOLLOWING MONTHS..........................................................................5 CRISIS IN ARGENTINA.....................................................................................................5 DECOLAR/DESPEGAR......................................................................................................5 ACQUISITIONS AND PARTNERSHIPS...............................................................................5

UPCOMING MONTHS............................................................................................5

MACRO ECONOMY MAIN FACTS: nAfter the period of strong recession in the Brazilian economy commented in the previous report, the country is slowly trying to recover in order to grow faster. nThe long-awaited Social Security Reform was approved in both rounds in the Chamber of Deputies and now goes to the Federal Senate, which will also vote in two rounds. Indicatives point to a favorable decision. This issue is crucial for Brazil not letting the debt-to-GDP ratio burst. Why is it so important? Out-of-control public accounts increase the risk of rising interest rates and inflation, important variables in investors’ long-term decision making. nThe Banco Central [Central Bank of Brazil] has lowered the benchmark interest rate to 6%, its lowest level in history. This is one of the ways to stimulate the economy with the lowest cost of money and consequently cheaper loans and financing, stimulating investment and job creation. nAnother important project is the Temporary Measure of Economic Freedom, which is being discussed at the National Congress and will also contribute to improve the economic environment by reducing bureaucracies for smaller businesses.

An unexpected fact was the result of the primary election in Argentina, which took place on August 11th. The opposition candidate started ahead with a safe margin. Although the main election dispute is only in October, it is a sign of the Macri government’s weakness because it has failed to implement reforms and inflation soared. Even though Argentina participates with just over 5% of Brazil’s total trade, the impacts can be very bad if it goes back to the previous political-economic model, as it tends to make Mercosur and European Union negotiation more complicated, for example. nBack to the Brazilian scenario, the government has decided that FGTS resources will be released annually to workers. In the next 12 months, The amount of US$ 10,2 billion is estimated to be injected in the economy. Even if not all of this amount is directed to shopping, consumers will be able to pay their overdue bills and make room for new spending. This will help GDP by about 0.1%. This may seem a small amount, but it is very significant and will help to accelerate the consumption in end-of-year sales and to continue a stronger growth in 2020.

LATAM Macro Data Resume Jul-19

Argentina

Brazil

Chile

Colombia

Mexico

Peru

Unemployment rate (jun) Basic interest rate (jul) Inflation (LTM - jul*)

10,10% 78% 54,40%

12,00% 6,00% 3,22%

7,10% 2,50% 2,57%

9,40% 4,25% 3,71%

3,60% 8,25% 3,78%

6,30% 2,50% 2,50%

*LTM - jul - Last Twelve Months Untill July

Brazil’s unemployment rate reached 12% in the quarter ended in June. This percentage is lower than the one registered in the immediately previous quarter, 12.7%, and also lower than the 12.4% seen in the same period of 2018.

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CONFIDENCE INDEX: The São Paulo City Consumer Confidence Index reached 110.9 points in July, a rise of 3.3% compared with the previous month and strong growth of 7.2% compared with the previous year.

The Retail Businessmen Confidence Index (ICEC) of the city of São Paulo registered its fourth consecutive drop and reached 111.9 points in July, a decrease of 4.4% in the monthly comparison. However, compared to July 2018, ICEC registered a rise of 9.5%.

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Consumer Confident Index (ICC) and Comerce Businessman (ICEC)

Note: The ICC and ICEC range from 0 to 200 points. The level from 100 to 200 points is considered optimistic and below 100 points, pessimistic.

Although the indicators are from the city of São Paulo, they follow the trend of what is happening in the rest of the country since the largest city in Brazil represents 11% of the national GDP.

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OTHER IMPORTANT DATA: Retail sales: 1.7% in (June) compared to the same month of 2018. Considering the first half of the year, the balance is positive by 3.2%.

Brazilian industrial production decreased 1.6% in the first half of the year ;we must pay attention to this data, because if it becomes positive again, it means more jobs and consumption.

The Extended National Consumer Price Index (IPCA), the country’s official inflation, registered 0.19%, the lowest variation for July since 2014. The cumulative change in the last 12 months is at 3.22%.

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TOURISM

A SEMESTER OF CHALLENGES nThe first half of the year was highlighted by the Brazilian aviation crisis, since Avianca Brasil left the market. The offer of airline seats is estimated to have receded nine years due to the 50 aircraft leaving the market at one time. Avianca Brasil flew to Santiago, Miami and New York, but underwent court-supervised reorganization (Chapeter II), gradually reducing its network until completely stop operating.

In addition to fewer seats to be sold, the crisis triggered by Avianca Brasil caused domestic airline tickets to skyrocket. In some cases the ticket price increased up to 120%. Average was 30% nAt the international level, the focus of the semester was on the larger offer to Europe, with very competitive prices. The highest ticket prices were to the United States, due to the cut of flights in the past. nThe crisis in Argentina, with significant travel drops, also affected numbers in Brazil and the balance sheets of large companies such as CVC Corp and Decolar/Despegar. nIn the balance sheet released by Abracorp, an association that brings together the main TMCs in Brazil, sales rose 14.7% in the semester (reaching R$ 5.6 billion), but most international companies had sales declines in the corporate level.

TOURISM INDICATORS OF THE SEMESTER BELOW Brazilian airlines sold R$ 2.2 billion in Abracorp agencies, an increase of 24.8%, mainly stimulated by the raise in the average fare.

International flight ticket sales at Abracorp agencies (corporate travel): R$ 1.43 billion, a decrease of 1.7% Among the international airlines marketed by the 29 Abracorp members in the first half of 2019, among the top 10 in the ranking, only Latam, United Airlines and Copa Airlines showed growth.

1 – Latam: 19.7% of share (+ 11.2%) 2 – American Airlines: 13% (-5.3%) 3 – United Airlines: 10.7% (+ 20%) 4 – Air France-KLM: 9.3% (-7.5%) 5 – Lufthansa/Swiss : 6.8% (-20.8%) 6 – Delta Air Lines : 5.9% (-3.4%) 7 – British/Iberia: 5.2% (-7.7%) 8 – Emirates: 4.8% (-2.3%) 9 – Tap: 3.7% (-13.2%) 10 - Copa: 3.5% (+ 10.5%) Source: Abracorp/business

travel association

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CVC CORP Independent travel agencies saved the second quarter and consequently the semester in sales to CVC Corp in Brazil: they totalized R$ 4.02 billion from January to June, a growth of 28.6%. The exclusive CVC stores (1,331 in total, and 62 Experimento stores – the company’s branch for exchange travels) sold R$ 2.86 billion and grew only 3.8%. Sales totalized R$ 7.5 billion in Brazil (+ 20.6%) and R$ 8.2 billion including Argentina. Investments in Argentina still have not brought the expected return due to its economic crisis. Sales in the semester totalized R$ 916.5 million, a decrease of 22.1% and loss of R$ 5.2 million.

CVC Corp transported 2.86 million passengers in the second quarter and 5.9 million in the semester.

AVIATION IN THE FOLLOWING MONTHS Domestic airlines are signaling an increased supply by about 30 aircraft, to be completed in the next 90 days, increasing the offer mainly through the 4T19, which should lead to a market stabilization. After the additional aircraft start operating, market estimates that the supply of 4T19 will be around 7% higher than 4Q18, while for 1T20, supply should be around 10% higher than 1T19.

CRISIS IN ARGENTINA CVC Corp reported that a stabilization of sales is already noticed in Argentina. In July it already had almost the same value in dollars as in 2018 considering the same period.

DECOLAR/DESPEGAR OTA Decolar’s result was US$ 1.1 billion in the second quarter of 2019, being Brazil responsible for 39% of sales, and growing 4% (compared with a 6% overall drop in Latin America).

ACQUISITIONS AND PARTNERSHIPS nCVC Corp bought Almundo, headquartered in Argentina with branches in Brazil, Mexico and Colombia nDecolar completed the purchase of Viajes Falabella, from Chile nAlatur JTB announced partnership with Lufthansa City Center nTMC Avipam started a partnership with Travel Leaders

UPCOMING MONTHS nFrom

September 25 to 27, 2019, Abav Expo, the largest fair for travel agents and operators in Brazil, will be held in São Paulo. PANROTAS is one of the anchor exhibitors of the event and, as a tradition, we will announce the Power List 2019, which presents the 100 most powerful Tourism people of the year in Brazil. nIn November, PANROTAS celebrates its 45th anniversary with four special editions of PANROTAS Magazine, the only weekly magazine in the industry, and several special actions for the travel and tourism industry in Brazil.

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