Brazilian Overview Monthly Report - NOV 2019

november/19

BRAZIL ECONOMIC OUTLOOK..................................................................................2 IMPORTANT DATA.......................................................................................3 LATIN AMERICA MACRO DATA RESUME......................................................3 CONFIDENCE INDEXES................................................................................4 TOURISM NEWS AVIATION....................................................................................................5 POSITIVE BALANCES CVC CORP RESULTS HIGHLIGHTS................................................................5 DECOLAR/DESPEGAR.COM BALANCE HIGHLIGHTS.....................................6 GOL BALANCE HIGHLIGHTS.........................................................................7 HIGH SEASON..............................................................................................7 LOS ANGELES ASSEMBLES LATIN AMERICANS IN FIRST FORUM EDITION..7 SAN FRANCISCO IN BRAZIL.........................................................................8 LAS VEGAS..................................................................................................8 SURVEY WITH OPERATORS..........................................................................8

BRAZIL MAIN FACTS: nSince

our last BOMReport, the Banco Central [Central Bank of Brazil], through the Monetary

Policy Council (COPOM), has decided to reduce, once again, the base interest rate from 5.5% to 5% per year. In the official report, COPOM signals a further cut, expected to reach 4.5% at the last meeting in December.r. nThe

record after record regarding the interest rate has had an unprecedented effect in the

country, and savings, the main form of income of Brazilians, may lose their purchasing power.

Under the current rule, savings yield 70% considering the SELIC [base interest rate] and if it reaches 4.5%, profitability will be 3.15% against an expected inflation of 3.6% in the next year. nThis

way, consumers will have to look for other types of investments with different risks -

even stock market - or they will use the money for consumption, with low interest rates and easier credit. The circulation of FGTS [Government Severance Indemnity Fund for Employees] money - a long-term guarantee fund (a kind of compulsory savings from the Brazilian labor law that is being released by the Bolsonaro government), which has recently come into force, and more people receiving the 13th salary, also a Brazilian labor rule, are factors that will probably make the commerce have its best end of year in history. nOn the corporate side, the average interest rate of the financial system went from 20.4% per

year in September 2018 to 17.8% in 2019, according to the Central Bank. The average daily concession for corporations has grown by almost 10% in one year, considering the inflation deduction. And the best: the non-payment rate is falling. nAnd

the second-round approval of the Federal Senate Social Security reform, generating

a saving of 800 billion reais in 10 years, was also an important highlight for the Brazilian economic scenario. From the conclusion of the voting, there was room for discussion of the next topics of the government reform agenda, such as the tax and the State reforms. nPolitical

instability in South America, such as the crisis in Chile and the resignation of the

president of Bolivia, for example, generates a warning signal for Brazil. Regarding Argentina and its new president, the situation will depend on the first actions and signs of the its government for us to understand the possible impacts on the Brazilian economy, since the neighboring country is the main trading partner of the continent. nMore globally, regarding the conflict of comings and goings, China has reached an agreement

with the United States to reduce customs duties. This is excellent news to calm markets around the world, especially emerging markets.

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IMPORTANT DATA: n Brazil

created 157,000 new formal jobs in September. Year to date, 760,000 formal

jobs were created, with emphasis on the following sectors: Services (424,000), Manufacturing Industry (137,000) and Civil Construction (117,000). The latter is recovering after the crisis. n The

industry showed a slight recovery in September, 1.1%

compared to the same

month last year. However, in the year to date, the sector is negative 1.4%. With more and cheaper credit, the trend is for a stronger recovering of the sector in 2020. n Prices

increased by 0.10% between September and October, the lowest percentage

for the month since 1998. The official price index (IPCA), accumulated a rise of 2.54% in 12 months. The accommodating level of inflation is allowing the reduction of interest rates safely. n The

market has reacted positively to the government’s reform agenda. The stock

exchange has been hitting a record high. The dollar returned to a level below 4 reais in October, but because of external factors, went back to a higher exchange rate (4 reais plus) in November. As seen, it is still a instable issue. The release of former President of Brazil, Lula, who is still convicted, but is appealing out of jail, is another political fact that can impact economy.

Latin America Macro Data Resume

Argentina

Brazil

Chile

Colombia

Mexico

Peru

Unemployment rate (LM)

10,60%

11,80%

7,00%

10,20%

3,80%

6,40%

Basic interest rate (LTM)

63,00%

5,00%

1,75%

4,25%

7,50%

2,25%

Inflation (LTM - oct*)

50,30%

2,54%

2,71%

3,86%

3,02%

1,02%

*LTM - Last Twelve Months *LM – Last Months Data Legend: Green, Red and Black The data get better, worth and equal than last month.

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CONFIDENCE INDEXES: Consumer Confidence Index (ICC) of the city of São Paulo was close to stability in October with 111.8 points, 0.3% less than the previous month. However, compared to October 2018, the ICC increased 3.6%, as a result of low inflation and interest rates and a better labor market.

The Retail Businessmen Confidence Index (ICEC) of the city of São Paulo registered 118.4 points in October, a rise of 2.7% compared to September. Considering the annual counterpoint, there was a rise of 15.4%. It is an important thermometer that traders will probably buy more from their suppliers in anticipation of more positive year-end sales.

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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TOURISM NEWS AVIATION nIn September, domestic passenger demand increased 1.9% compared to the same month of 2018, while supply grew only 0.5%. In September, Brazilian airlines carried 7.8 million passengers on flights within Brazil, a rise of 2.8% over the same period last year.

From January to September, passenger demand increased 0.3%, while supply fell 1.9%.

During this period, the domestic market carried approximately 69 million passengers, a rise of 1% compared to the last year.

In September, Azul, Latam and Gol showed an increase of 32.4%, 12.1% and 9.6%, respectively, compared to 2018.

Also in September, the international demand of Brazilian airlines dropped 7.6% and supply decreased 12.2%, showing the impact of the exit of Avianca Brasil from the market and flight cuts especially to the United States. In the month, 694,000 paid passengers were carried on international flights, indicating a 9.2% contraction compared to the same period of 2018. In the year, however, demand grew 3.5% and supply increased 1,3% compared to the same period last year.

POSITIVE BALANCES CVC CORP RESULTS HIGHLIGHTS n In the first nine months of the year, booking for tickets reached R$ 11.5 billion (growth of 18.8% over 2018). Including Argentina, sales reached R$ 12.6 billion, with a growth of almost 30%. The company reached 1,377 CVC Operadora stores and 65 Experimento stores, and will probably have 1,400 stores until the end of this year.

Problems such as the high price of airline tickets, the high exchange rate (dollar and real), oil spills in northeastern Brazil and planes withdrawn from the market (such as Gol’s 737NG) led to a drop in leisure sector, according to the company. The situation should not normalize until early 2020, when all aircraft withdrawn from the market should return.

n

n CVC also revealed that it had to change the price of products due to the aggressiveness

of some competitors, especially in the sale of travel packages. To stay competitive it had to cut prices and also invest more in marketing: R$ 118.7 million from January to September, an rise of 13.4% over 2018.

By sales channels, exclusive CVC stores sold R$ 4.3 billion in the first nine months of the year, a growth of 1.8% (in the third quarter there was a decrease of 2.6%). Sales in similar stores fell 2.9% in the third quarter. Independent travel agencies showed their strength and accounted for R$ 6.4 billion in sales, a rise of 30.7% (in the quarter were R$ 2.3 billion in sales and a growth of 34.5%).

n

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nOnline

sales grew 41.7% in the year (R$ 838.6 million), but fell 8.5% in the third quarter (R$ 240 million).

CVC Corp carried 3.3 million passengers in the quarter (+ 14.5%) and 9.3 million in the year (+ 18.5%). Credit card payments were 46% of the total in the quarter, followed by financing (30%), cash (16%) and CVC own financing (8%).

n

Despite the numbers, the financial market reacted badly to the company’s third quarter results and to the outlook for the company’s fourth quarter. Company shares fell about 20% from the publication of the balance sheet to the publication of this report.

n

DECOLAR/DESPEGAR.COM BALANCE HIGHLIGHTS nIf in Brazil Decolar is the second largest tourism company, behind CVC, in Latin America, it is the largest group. Despegar (Decolar in Brazil) reached US$ 1.2 billion in sales in the third quarter of the year, or nearly R$ 5 billion, a rise of 26% over 2018. nYear-to-date

sales reached nearly R$ 14.5 billion (its biggest competitor, CVC Corp, reached R$ 12.6 billion in the same period), with Brazil accounting for about 40% of this total (39% in the third quarter, consolidating as the largest and main market for OTA – online travel agencies).

nSales

in Brazil grew 15% and transactions 3% in the quarter, indicating a rise in the average fare, especially airfare. In Argentina transactions fell 4% and sales 11%. In other countries, there was a growth of 12% and 13%, respectively. OTA had a loss of US$ 3.7 million in the quarter.

nPackages,

hotels and other products accounted for 42% of Despegar’s third quarter transactions, a stable percentage compared to the same period of 2018, but there was a rise of 14% in revenue. The segment accounted for 61% of sales, more than 58% a year ago, showing less dependence on flights.

nOf

all transactions, 39% were completed in Despegar’s application, which has already reached 57 million downloads. (CVC promises an application by the end of 2019.)

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GOL BALANCE HIGHLIGHTS nLargest airline for domestic passenger transport, Gol registered net revenues of R$ 3.7 billion in the third quarter, the highest ever recorded by the company in a third quarter. The figure represents a rise of 28.3% over the same period last year. n“The

strong demand of clients, mainly in the corporate market, coupled with our capacity discipline, enabled us to deliver outstanding operating results in the third quarter. The occupancy rate increased by 3.8 p.p. and was the highest ever registered in this period,”said Gol CEO Paulo Kakinoff.

nThe

company transported nearly 10 million customers in the quarter, a rise of 13% compared to the same period last year, resulting in a 38% domestic market share, according to Anac data. In the corporate segment, according to Abracorp data, 39% of passengers flew by Gol.

HIGH SEASON nGol, Latam, Map, TwoFlex and VoePass together will add 6,000 extra flights and one million additional seats on domestic and international routes to supply the demand during summer high season in Brazil. The companies are associated to Abear, which released the data. “These are the perspectives for the noble aviation and tourism period, from December to March, when leisure travel intensifies,” reported the Brazilian Association of Airline Companies (Abear).

LOS ANGELES ASSEMBLES LATIN AMERICANS IN FIRST FORUM EDITION nIn an unprecedented initiative and much praised by participants, Los Angeles Tourism held the first edition of the Latin America Tourism Forum. About 150 local associates listened to presentations and debated with Brazilian, Argentinean and Mexican operators and journalists. nBrazil

was represented by the companies Agaxtur (Paulo Biondo), CVC Corp (Carolina Gusson), Flytour Viagens (Georgia Mariano), Orinter (Jorge Souza) and Schultz (Saulo Reis), as well as American Airlines (Eduardo Moraes) and PANROTAS (Artur Luiz Andrade).

From Mexico the following companies took part in the event: Best Day, Mega Travel, Mundo Joven, Travel Impressions and Viajes El Corte Ingles, and from Argentina: All Seasons, Avantrip (owned by CVC Corp), Logan Travel, Julia Tours, Piamonte and TBM, as well as Ladevi, PANROTAS partner in Argentina and represented by Adrian Bertini, who is in Miami, serving both companies.

nAt

the opening of the event, LA Tourism Board CEO, Ernest Wooden Jr., highlighted that foreigners were 7.5 million of Los Angeles’s 50 million visitors in 2018 (a goal that this destination hit two years earlier than expected), but they represent about 50% of spending, hence the importance of understanding the opportunities to grow in markets such as Latin America.

nThe

director for Latin America and Mexico, Mariella Carmona, said the event was very important for the members to hear from Latin America’s main operators and journalists about the needs and suggestions for improving the flow of Latin people to the city. The evaluation was very positive and Los Angeles Tourism is already thinking about the 2020 edition and to bring in professionals from other markets to talk to the members on the spot.

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n“Los

Angeles is a complete destination, but most industry players and consumers are not up to date on attractions, openings and unique things in the region. We need to be more present in Brazil and also in Argentina,”said Artur Luiz Andrade. In 2020, American Airlines has promised daily São Paulo-Los Angeles direct flights (four times a week today).

nIn

addition to the forum, attendees were able to experience some of Los Angeles’ top attractions for two days. This destination does not currently have a representative in Brazil.

SAN FRANCISCO IN BRAZIL nIf Los Angeles took operators to an on-site event, a delegation from the San Francisco Travel Association came to Brazil and Colombia for trade events. One of the goals is to arrange a direct flight from São Paulo and also attract Brazilian visitors who are used to travel to Europe, New York and Chicago. Luxury, culture, food & wine, sports and family travel are some of the highlights of San Francisco for the Brazilian public. The destination has been represented in Brazil by SMI, owned by Newton Vieira, for 19 years.

LAS VEGAS nThe same week San Francisco was in Brazil, Las Vegas Tourism, represented by Interamerican, was in São Paulo for an event aimed at the Mice market. The events are responsible for bringing nearly 7 million visitors to Las Vegas each year. In 2018, the city hosted 48 of the largest fairs held in the U.S. and wants more Brazilians participating in them. In 2020, the IPW will take place in the city in early June.

SURVEY WITH OPERATORS n PANROTAS Editor-in-Chief and Chief Communication Officer, Artur Luiz Andrade, sent a survey to 30 Tour Operators, including the main companies in the industry (the biggest companies in sales) to learn how they work with top destinations, especially Los Angeles, as he gave a presentation about the Brazilian market to Los Angeles Tourism.

Among the 30 operators heard, the lack of information and updates about Los Angeles, and the high cost of travel, especially at the local hospitality, were highlighted.

n

We then asked these professionals which tourist destinations are most active in promotions in Brazil and the answers were: Orlando, United States, Florida and Portugal.

n

Regarding the representative companies they like to work with the most, the answers were: Aviareps, Imaginadora and Visit Orlando, which also appeared when the themes were “training” and “support with material and information”.

n

“Which destinations have the best support structure for tourism professionals?” was another question in the survey. The answers were: United States and Orlando, followed by California, Spain, Florida and Miami.

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Check out the full survey at https://www.panrotas.com.br/destinos/pesquisas-eestatisticas/2019/10/que-destinos-e-representantes-se-destacam-para-os-operadoresconfira_168655.html.

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