Competitors get a breather with the postponement of the Bullet Train Project

The bullet train that will connect Rio de Janeiro and Campinas, passing through the city of São Paulo, will enter a war which, in recent years, has been won by the airlines. Currently, every day, an average of 9 thousand passengers pass through the local airports of Rio de Janeiro (Santos Dumont) and São Paulo (Congonhas), in both directions, while an additional 3 thousand passengers travel between the bus stations of Tietê (in São Paulo) and Novo Rio (in Rio de Janeiro). Just two years ago, the bus service transported 26% more passengers while the airlines had 6% less. More competitive pricing and also the growth of the Brazilian middle class are factors that explain the victory of the airlines and are also part of the new bet of this sector to face the arrival of the possible new competitor.

The promotional fares charged by the airlines are very close to the cost of coach tickets. Anyone wishing to travel from São Paulo to Rio de Janeiro a week from now will pay a minimum of R$ 125 (€ 56.04) and an average of R$ 300 (€ 134.49), while the special sleeper bus (leito) has a maximum fare of R$ 117.12 (€ 52.51). The price of the flight, however, varies tremendously, being more expensive when bought closer to the day of travel, and also depending on the intended time of travel. The cheapest coach ticket for the same trip, leaving from the Tietê Coach Station, is R$ 50.67 (€ 22.72). The highest fare for the bullet train, as established in the Invitation to Bid, is R$ 199 (€ 89.21).

To compete with the airlines, the bus companies are very concerned about improving the quality of the terminals, bringing them closer to the quality of airports. According to Heinz Kumm Junior, the Executive Director of 1001, the most important road transport company operating the route between Rio and São Paulo, services which are common among the airlines are now being taken up by road transport, including sale of tickets through the Internet and also the access to sockets to charge mobile telephones and laptop computers. “We need to show everyone that  bus stations are not ugly and dingy spaces”, he says.

Also according to Mr Kumm Junior, road transport competes with the airlines by offering more comfort on the trip, while in the case of the bullet train the grounds for competition will be those of price. “I feel we will be cheaper than the bullet train, unless there is some kind of subsidy involved”, he says.

Even though studies have shown that 50% of the future demand from people who travel along the Rio – São Paulo axis should be absorbed by the high-speed train, the airlines say they do not fear the arrival of the new competitor. The companies believe that there is a high repressed demand to be boosted by the increases in income, which will keep up the growth in movement over the years to come, even with the arrival of a new competitor.

However, examples in other countries show that the bullet train could become more competitive. In Japan, the high-speed train led to the demise of air transport between Tokyo and Nagoya and reduced the market share of the airlines to 20% in the case of travel between Tokyo and Ōsaka.

The road transport sector sees the arrival of the new competitor with caution, but according to Mr Kumm Junior, the bullet train will have stronger competition with the airlines, as this is a form of transport more expensive than coach travel. So far, however, the project is an unknown, according to Mr Kumm Junior. “It will still take some time before the bullet train starts operating, and the cost should be higher than what the coach passengers can pay”, he says.

The Communications Manager at Azul Airlines, Gianfranco Beting, sees the forecasts suggesting loss of market share for the airlines with scepticism, and considers that the modernisation of transport in the country could, indeed, nurture the use of all modals.  “We believe that the bullet train could help to increase the passenger flow on the airlines, integrating the two means of transport”, Mr Beting says.

Gol Airlines have a similar position. According to the company, on the Brazilian market there is still plenty of scope for growth, regardless of the transport modal.

One sign of this is that the airlines are already finding physical limits for the expansion of their business. Mr Beting says that Azul would like to operate out of Congonhas, but the airport is closed for new operations, which shows that one of the reasons why the operations do not grow is the lack of infrastructure.

Gol currently has six aircraft dedicated to the Rio – São Paulo air shuttle service (Ponte Aérea) and operates 31 daily flights between São Paulo and Rio de Janeiro, with services at the airports of Congonhas and Cumbica, in São Paulo, and Galeão, in Rio de Janeiro. At peak times, the company carries out 24 operations (takeoffs and landings) between Rio de Janeiro and São Paulo.

Azul started to operate the Rio – São Paulo axis out of the city of Campinas at the end of 2008 and this month has reached the level of 6 million people transported, a growth rate which Mr Beting himself considers “impressive”. “Viracopos has obtained the largest growth of airline traffic in 2009, a massive 390% when compared with 2008, and we have reasons to believe that there is still a lot of untapped potential for growth”, he says.

The company runs about 70 operations every day at Viracopos. According to Mr Beting, there are already structural difficulties at this airport which has been largely idle for two years, and the operation of Azul depends on repair work already announced by the Brazilian Airports Authority (Infraero). In other words, demand is still high.