Up in the air..
Today we had one of the best meetings on this trip! Azul Airlines!
Azul Airlines was founded in 2008 by Brazilian-born David Neeleman, the former CEO of Jet Blue. Within four years they became the biggest low-cost airline in Brazil with ~15% market share. Furthermore, they also have the highest load factor (how full their airplanes are) in the Brazilian airline industry. Their main competitors are LAM and GOL, which both have about 40% market share.
*
*
Unfortunately, David Neeleman had to go to Brasilia on the day of our meeting, because Dilma announced a plan to build 800 new airports. And if Dilma calls, you have to follow.
So instead we met with the CFO and Chief Marketing/Revenue officers of Azul. They both worked with David at Jet Blue and decided to come with him to Brazil when we wanted to build Azul. They are truly American: their language and accent, they opinions, their behavior.. In a way, this was the easiest meeting because they “spoke our language”. Interesting, how such cultural things can be very connecting.. (However, in their whole company they have about 9,000 Brazilian employees and only a handful of Americans. So they’re an actual Brazilian company).
Furthermore, even though they used a lot of slides, it didn’t seem like a practiced company presentation. They talked very freely and gave us a lot of inside stories about the beginning of the company. We definitely got a lot of great insights into the Brazilian airline market. A really cool meeting!
Key takeaways:
- About the airline business in general: “It’s not a business we recommend if you wanna make a lot of money” 😉 For example, if you take the S&P 500 over the last couple of years, the airline industry has the worst return on investment.
- The market before their entry: Before Azul was launched, GOL and TAM formed a perfect oligopoly, because they were exactly the same. The both had the same market share, the same airplanes, the same routes and the same prices. Everything was very inefficient and fares were 50% higher than in the US.
- Roads: In Brazil, a lot of the roads are either in very bad conditions, or they are in good conditions but you have to pay toll fees. So if you count the toll fees from Sao Paulo to Rio, it is so expensive that flying doesn’t cost much more.
- Inertia: When they started their business, they heard a lot of “oh, it doesn’t work” or “oh, you can’t do that.. it’s the law”. For example, they got told that they had to provide the pilots with a hot meal during the flight, because “it’s the law”. However, this costs a lot of money, because you have to put a microwave in every single airplane.. just for the pilots.. However, they checked with their lawyers and found out that there is no law about this in Brazil. So if you’re new in a country, don’t believe everything they say.
- Hierarchy in Brazil: In this country, managers are treated like gods and are paid very well (also because of the skilled labor shortage). It is not common for a CEO to speak to employees two or three levels below him. If someone would do that people would probably think they did a huge mistake and will get punished now.
Furthermore, people also don’t like to do work which of lower hierarchy people. For example, at Jet Blue the whole cabin crew helps to clean the airplane, because external cleaning companies cost a lot. Here in Brazil, the cabin crews refused to do this work, because they have a very strong culture of hiring people to clean instead of doing it yourself. So in the end, they had to hire an external company for it. Luckily, labor is relatively cheap in Brazil.
However, in their view it is very important to have flat hierarchies. Therefore, things which are visible to the front line staff should be equal (e.g. parking, eating etc). You can still pay the differently, but the rest should be the same for everyone.
- American vs. Brazilian culture: The American culture is very much “in your face”. Brazilians are more relationship driven. They would never publicly disagree or argue. Their Brazilian employees never understood in the beginning how the Americans could have a very hard argument with each other and afterwards still drink a beer together.
- Short-team focus: Brazilians are very much short-term focused. 90% of all airplane tickets are sold in the respective month of the flight, compared to 50/60% in the US. There is no culture of booking or planning in advance.
- Economic classes: In Brazil, everyone speaks very openly about the economic classes (which are called A to E here, with C being the middle class). And everyone really likes to show the graph how the middle class developed over the past couple of years (we literally saw this graph in EVERY meeting)
- Government and taxes: The government thinks only the rich people travel, so they don’t focus on making airfares cheaper. Instead they use it as a cash cow to generate taxes. For example, on an average airline ticket of 200 USD, at least 50 USD are taxes.
- Unions: In the US, unions take care of everything (healthcare, working hours etc.). In Brazil, unions mostly care about wages. However, the union represents all airlines. So if they negotiate a 5% salary increase, it counts for Azul as well as all the competitors. And because their competitors pay higher salaries in general, the 5% increase hurts them even more.
After the meeting they showed us the airplane simulator 🙂 Really cool!
***
In the afternoon, we met with the famous soccer player Rai. He played for Sao Paulo and Paris Saint-Germain and won the World Cup in 1994 with the Brazilian team. After his professional career, he started to NGO’s which deal with obesity in Brazil (and after traveling for three weeks in this country I can testify that it’s a real problem.. no wonder if everything here is deep-fried and with lots of cheese)
However, I felt this meeting was not really insightful, so I didn’t even take notes.. The only thing I jotted down was that teachers in Brazil need a bachelor’s degree in order to be allowed to teach. However, this creates a shortage of teachers. We have the same rule in Switzerland, but I don’t really see the reason why we need it. If I think about the most important skill for a teacher than they would be empathy and teaching skills. And none of them is bound to a Bachelor’s degree. This only works if teaching is such a popular job that highly talented people see it as a real option next to other jobs.
***
Tomorrow is already our last day!! However it’s also one of the most important ones with four meetings! Looking forward to more insights into Brazil!
Tags: Sao Paulo
suedostasien
Leave a Reply