Brazilian Overview Monthly Report - SEPT 2019

September/19

BRAZIL GOOD NEWS FOR THE BRAZILIAN ECONOMY...............................................2 LATAM IMPORTANT DATA.......................................................................................3 CONFIDENCE INDEXES:................................................................................4 CONSUMER CONFIDENT INDEX (ICC)..........................................................4 COMERCE BUSINESSMAN (ICEC)................................................................4 BROAD CONSUMER PRICE INDEX (IPCA).....................................................4 LATAM MACRO DATA RESUME AGO-19 .......................................................5

TOURISM BRAZILIAN AVIATION...................................................................................5 DOMESTIC MARKET SHARE (RPK)...............................................................5 DOMESTIC RPK BY COMPANY.......................................................................5 NEWS......................................................................................................6

BRAZIL GOOD NEWS FOR THE BRAZILIAN ECONOMY: nGross Domestic Product grew 0.4% in the second quarter compared to the immediately previous quarter. The result exceeds the projections made that were close to -0.1%. The highlights came from industry, services and investments. The latter pointed to a quarterly increase of 3.2%. nThe agenda of reforms and debureaucratization of the Brazilian economy continues advancing

and brings a boost to entrepreneurs. The Economic Freedom Provisional Measure, commented in the last report, was approved. The Social Security Reform, which has already been approved by the Chamber of Deputies, is under discussion in the Senate and should be voted in early October. Besides these measures, another important point to mention is the progress of the Tax Reform in the commissions created in the National Congress. Although the effects of these measures are not immediately seen, it will create a much more favorable business environment for Brazil to have long-term sustainable growth. nAnother

fact that has recently affected Brazil was the discussion about fire outbreaks in the Amazon. This topic also opened the meeting of the group of the main countries, the socalled G7, which took place in France in August. Evidently, there was a political clash and the image of Brazil was somewhat scratched, but, regarding the domestic economy, there were no short-term losses and no projection was revised because of this fact. In the long run, some foreign companies, mainly in fashion and agribusiness sectors, threatened to boycott Brazilian products and there was room for an opposition to the agreement between Mercosur and the European Union. However, it tends to be much more a political rhetoric in defense of Brazilian interests than an effective annulment of the agreement.

nConsumer

confidence has risen again and it is linked to the injection of the Government Severance Indemnity Fund for Employees (FGTS) resources from this month - FGTS is a fund created in 1967 to protect workers in the event of unfair dismissal; it holds 8% of their monthly salary in an account managed by the government, but due to new market dynamics and hiring modalities it has lost its essence causing the government to return this money to the workers. This measure aims to inject 30 billion reais in 2019 and 12 billion reais in 2020 into the economy and may contribute positively to a new event in the Brazilian economy: Brazil’s Week, from September 6th to 15th, a period in which trade and service sectors try to stimulate the consumption through promotions and sales.

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LATAM Regarding the external scenario, Argentina, which has already had its currency devalued due to the primary elections, indicating the opposition candidate victory at ballot box, has entered - again - a debt moratorium. For Brazil it had already been a serious problem.

Brazilian exports to the neighboring country fell more than 40% from January to August.

Both countries signed a free trade agreement earlier this month for the automotive sector, but it will fully come into force 10 years from now.

The risks of the global economic slowdown and the trade war between the United States and China have put pressure on currencies around the world, especially in emerging countries. In two months, the dollar went from 3.75 to 4.10 reais, an increase of almost 10% This is an important data, as it impacts the costs of the Brazilian economy. At this time, when companies are coming back with the appetite to invest, buying equipment and inputs abroad will be more expensive.

Important Data: nTrade sector exceeds expectations and sales grow 7.6% in July compared to the previous year. The highlight of the month was the automotive sector, which increased 17.1% The availability of a little more money in circulation favors the sale of durable goods. nThe Brazilian industry registered another fall in July (-2.5%

). The result was influenced

by Intermediate Goods (-5.4% ), with a fall in the extraction of petroleum products (-8.8% ) and food products (-6.2% ).

nInflation

in Brazil remains under control with no signs of price pressure. In August, the 12-month accumulated Extended Consumer Price Index (IPCA) was 3.43%, below the target of 4.25% stipulated by the Central Bank of Brazil.

nGrain harvest should break record in Brazil according to the Brazilian Institute of Geography

and Statistics (IBGE). The estimate for this year is an increase of 5.9% compared to 2018, or 13.3 million tons more. This is great news for consumers, because increased supply tends to push down prices. nThe

unemployment rate, according to the IBGE, fell from 12.5% in the quarter ending in April to 11.7% in the three months from May to July. The number of unemployed people is still very high, 12.57 million, but the balance is 608,000 less than the previous period.

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CONFIDENCE INDEXES: The Consumer Confidence Index in the city of São Paulo grew for the second consecutive month and registered 114.6 points in August, 3.3% above the previous month and 9.8% above the level reached in August 2018, 104.4 points.

The Retail Businessmen Confidence Index (ICEC) in the city of São Paulo continues to retract for the fifth straight month - August -, reaching 109.8 points, a monthly decline of 1.9%. However, there was a growth rate of almost 10% (9.8%) compared to the previous year.

jul/19

aug/19

jun/19

apr/19 may/19

mar/19

jan/19

feb/19

dec/18

oct/18

nov/18

jul/18

aug/18 sep/18

jun/18

apr/18 may/18

mar/18

jan/18

feb/18

dec/17

oct/17

nov/17

jul/17

aug/17 sep/17

jun/17

apr/17 may/17

mar/17

jan/17

feb/17

dec/16

oct/16

nov/16

jul/16

aug/16 sep/16

jun/16

apr/16 may/16

jan/16

mar/16

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.

12 month accumulation

19 g/ au

9 l/1 ju

19 n/ ju

19 ay / m

19 r/

9

/1

b fe

ap

19

n/

ja

9

8

/1

c de

/1

18

v/ no

ar

18

t/

oc

m

8 t/1 se

au

g/

18

Broad Consumer Price Index (IPCA)

goal

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LATAM Macro Data Resume Ago-19

Argentina

Brazil

Chile

Colombia

Mexico

Peru

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

10,10% 84,15% 54,50%

11,80% 6,00% 3,43%

7,20% 2,00% 2,58%

10,70% 4,25% 3,75%

3,70% 8,00% 3,78%

6,00% 2,50% 2,17%

*LTM - ago - Last Twelve Months Untill Augost

TOURISM BRAZILIAN AVIATION nBrazilian airlines Azul Linhas Aéreas, Gol Linhas Aéreas and Latam Airlines transported 8.6 million domestic passengers in July (latest data available at the time of publication of this report), which means a decrease of 4.5% and these same airlines transported 904,000 passengers on their international routes, an increase of 6.1%. nIn

the Brazilian market, supply fell 5.2% pared to 2018

nInternational

supply fell 2.6% January to July

in July and remains stable in the year, com-

in the seventh month of the year, but grew 4.6%

from

nAnd

after a 30% flight ticket increase in the first half of the year, it was one of the items with one of the biggest price drops in Brazil in August compared to July this year. Ticket prices fell 15.66% in the comparative period. Data are based on the Extended Consumer Price Index (IPCA), Brazil’s official inflation index.

Domestic Market Share (RPK)

Domestic RPK by company

45%

12 month accumulation

40%

40% 20%

35% 30%

-0%

25% -20%

20% 15%

-40%

10% -60%

5%

jul/16

0%

jul/16

jan/17

Avianca

jul/17

jan/18

Azul

Brazil Gol 41% share (+6.9% Latam 33.9% (+13.4% Azul 24.7%

Gol

) )

jul/18

jan/19

Latam

International Latam 67.8% Azul 18.9% Gol 13.3%

jul/19 Others

jan/17

jul/17

Avianca Gol Bottom margin

jan/18

jul/18

jan/19

jul/19

Azul Latam Top margin Source: Anac

(Brazilian airlines only)

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TOURISM NEWS March 29th, British airline Virgin will offer daily flights between São Paulo and London using a Boeing 787. The company has commercial support from Delta Air Lines in Brazil.

nFrom

February, Latam Airlines will fly using the A350 between São Paulo and Lisbon. The company says the market still suffers from oversupply to Europe, which has left ticket prices below the desired. For the United States, there was a cost recovery and since June the market has remained stable.

nIn

nGol

Linhas Aéreas has a new country manager in the United States: Luiz Henrique Teixeira. He was part of the Delta Air Lines team in Brazil for 23 years, is based in Orlando, Florida, and his email is LHMTEIXEIRA@voegol.com.br.

December 18th, American Airlines will resume the connection between Rio de Janeiro and New York. The company expects the flight to continue throughout 2020 and not just in high season.

nOn

nEvent:

From September 25th to 27th, Abav Expo and Encontro Braztoa, the largest tourism event in Latin America, will be held in São Paulo. International participation includes trainings provided by Disney, Universal Orlando and Visit Orlando and exhibitors such as Gol, Delta, Air France-KLM, Avianca Airlines, Latam, Lufthansa and Tap, Argentina, Bolivia, Cuba, Italy, Morocco, Peru, Dominican Republic, Taiwan, Portugal and Uruguay, besides 40 tour operators associated to Braztoa. Learn more at www.abavexpo.com.br.

nMore

ships: Trying to return to the situation in 2010, when 20 ships sailed the Brazilian coast, Brazil has eight vessels confirmed for the 2019/2020 season. The confirmed ships are: MSC (Seaview, Symphony, Fantasia, Musica and Poesia), Costa (Pacífica and Fascinosa) and Pullmantur (Soberano). Together, these vessels offer more than 530,000 beds and include 144 itineraries and 575 stopovers. In addition, more than 20 ships on long itineraries across South America are expected to make stopovers in Brazil.

nMore hotels: Of the 25,000 hotel rooms under construction in Brazil, 66% are in secondary

destinations (inland cities). These cities concentrate most of the R$ 6.7 billion that the hotel industry gathers to build new, especially economic class, properties. nTen

years: In 2020, US consulates in Brazil expect to renew about 500,000 Brazilians visas that will be expired. The country started issuing ten-year visas in 2010 and they are expected to be renewed without interviews (according to the analysis and evaluation of the consulates).

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