A business that isn’t afraid of challenges. This is Humberto Pedrosa’s profile, who since he was 20 years-old is on the front line of the Barraqueiro group, which is today the largest passenger transport group in the Iberian Peninsula. Two months ago, aviation was added to group’s range of activities, which includes highway, subway and railway companies. Along with David Neeleman, it acquired, in June 2015, TAP, a Portuguese company that gathered, at the time, debts of more than one billion of Euros. And the Brazilian market is in this sphere of action. The businessman has his eye set on everything that may appear in railway and subway concessions, including the Fortaleza subway.
That’s because he, even considering that Brazil is going through a difficult moment for new investments, has been prospecting new business in the transport area. In addition to Manaus, where the group already have an urban bus company, the movements around possible concessions and biddings in the transport area are been followed closely.
In order to enter the Brazilian market, Pedrosa opted to search for a partner with whom he already has a good relationship. The chosen was the businessman and former deputy Chiquinho Feitosa, whose partnership has lasted five years.
In an interview to O POVO, he talks about the challenges in investing on the transport sector and also about TAP. The company’s CEO states that the current priority is to renew the fleet, but expanding routes continues in the plans.
O POVO – The society that you own in Brazil is basically in Manaus?
Humberto Pedrosa – The company we have in Manaus is of urban lines. It’s a company featuring a hundred buses, but our intention upon creating the society with Francisco Feitosa is for investments made in Brazil in the transport area. We have experience in railway. We are the only Iberian private company that does railway and subway operations. We are the operators of the Porto subway, of the subway in the south of Lisbon and a suburban railway line called Fertagus.
OP – What’s the interest on this railway line in Fortaleza?
Humberto – In Fortaleza, and in Brazil, everything that may appear on railway and subway concessions will interest us because we have experience on this sector.
OP – But is there something more concrete?
Humberto – We are waiting the biddings to be launched so we can compete.
OP – And why Fortaleza?
Humberto – The market in Fortaleza is interesting because is the route closest to Lisbon, in terms of transport. Today, the trip Fortaleza-Lisbon takes a flight of 6h30min, which is interesting. And, on other hand, we didn’t want to be alone. We don’t know the country very well, the rules, legislation, etc., so I met Mr. Francisco Feitosa and thought he would be a good partner. We are very satisfied. Now we are waiting for bidding opportunities. We are waiting for the subway here in Fortaleza and, if there is any bidding that can be operated by a private operator.
OP – And has the Government signalized something about this?
Humberto – No. The former governor (Cid Gomes) has visited the railway and subway operations in Lisbon two or three years ago. He really enjoyed it and said he would be interested in doing the bidding. In other others: that the operation was done by the private sector. But after that we didn’t had any sign of interest by Ceará’s governor. After elections, the governor has changed. I’ll put myself at the governor’s disposal, if they want to visit the operations we do in Portugal. It could be interesting.
OP – And the urban transport sector, of buses, are you also interested in expanding it?
Humberto – I am. We are interested in everything in the transport area.
OP – How do you evaluate the market nowadays for this type of investment? Do you consider Brazil as a risky or interesting country?
Humberto – I think that investment hasn’t been easy in the Brazilian market. Profitability has dropped a lot. Trust is needed for investments. In other hand, mainly in the transport area, urban transport, it has been very hard because the fare is defined by the City Hall. It’s a politic fare. Costs increase every year: salary, fuel, inflation, etc. And, many times, the year goes by and there is no fare increase and the companies are struggling. I think the Government and City Hall must pay a lot of attention to this. I’m not saying I’m unmotivated to invest. I’m motivated because public transport is really necessary, is what gives mobility to people. It’s a very hard period, companies aren’t capable to invest. This is bad, but is temporary.
OP – How do you Fortaleza in comparison to Manaus?
Humberto – I see that Fortaleza is a bit better. There has been a fare raise and it’s a bit better, but the companies’ profitability is still very low.
OP – What’s the profitability average for companies nowadays?
Humberto – Last year the companies’ profitability were about 15%. But a transport company is a company with intensive yearly investments. The fleet needs to be renewed every year and if investment funds aren’t offered, the fleet gets older, maintenance costs rise up to a point you can’t go on.
OP – You stated that in Brazil companies’ profitability is of 15%. What about Portugal?
Humberto – In Portugal, profitability is of around 25%. Transport companies need to have this profitability for intensive investment. The bus price is too high and, in order to a company keep an acceptable average age, there is need to invest every year.
OP – Would this be the ideal average?
Humberto – Yes, it’s the minimum necessary to maintain a company in an acceptable average age, renewing its fleet and offering quality for the transport.
OP – What’s your opinion for the current fleet in Brazil?
Humberto – It’s an old fleet. But the most serious issue is that companies aren’t capable to perform more investments.
OP-What would be necessary to maintain these investments?
Humberto – There are many transports here in Brazil free of charge, but it should be the government’s responsibility. In Europe, the transport fare is different. Retirees, pensioners, children, students, etc., they only pay 25% of the fare, but this difference is subsided by the Government. There is need to prioritize more a high quality transport, but for that it’s necessary that companies have profitability enough to enhance their fleet. The Government must pay attention in creating these conditions. The social matter is the State’s responsibility, not the companies’.
OP – What’s the average profit of the companies?
Humberto – For transport companies, profit is very limited because of the investment requirements. Some years ago these companies were very profitable, but today the fare is not enough against the costs.
OP- Recently, you took on TAP. What are the company’s projects?
Humberto – First, it’s going through fleet renewal. Today, TAP has a very old fleet. And we will look for new routes, new markets.
OP- Do you have any project to expand routes from here in Fortaleza to Portugal?
Humberto – Fortaleza already has a daily flight to Portugal and it’s a good route, it performs well.
OP- How do you assess the competition for a hub?
Humberto – A hub must be analyzed. We’ve been on TAP for only two months. That’s why we are currently on a deep analysis phase; assessing that some routes are more unprofitable than others; performing market survey; we want, in June, to renew the fleet of small and medium courses. We are just starting.
OP – What is a management shared with the State? How does it happen in Portugal?
Humberto – TAP has privatized 61% of TAP. However, the Government has changed, and this new one wants the State to have the majority of the capital. We are negotiating with the Government and, surely, we will reach an understanding for TAP’s good future.
OP – TAP deactivated some lines in Portugal, including routes to Barcelona, Brussels, Milan and, here it also deactivated a line from Manaus to Lisbon…
Humberto – We can’t really consider it a deactivation, what happened to some lines in Europe. They are lines departing from the city of Porto, that didn’t have enough movement and, in Europe, flagship companies are having a tough time competing and dealing with low cost companies with reduced fares. That’s why there are some lines in Europe that we will suspend in Porto. However, in Lisbon, we still have the same routes and, in some cases, we will even increase them. In Manaus, we are assessment the possibility of making a connection with Azul. We will do Lison-Belém and, in Belém, connect to Manaus with Azul. By the way, nowadays to Manay there is a direct Lisbon-Manaus flight, but Manaus-Lisbon is a not a direct flight, there is a stop in Belém. All triangular flights have an enormous cost. The idea is to make a connection with other company, which will be done with Azul.
OP – Is there a deadline for these changes to happen?
Humberto – The closest we have to that is a survey of lines more unprofitable to the company. No matter what, we don’t want to close any lines, we won’t close and there may be some situations where it will be temporary.
OP – Azul has a Chinese partner, the HNA Group, with 23.7% of participation. Is there any possibility of creating Brazil-Portugal-China routes?
Humberto – There is a huge possibility. There isn’t anything concrete, but we have a good team assessing what’s feasible of expansion in TAP. Brazil is a huge market.
OP- What your opinion of the Northeast market in Brazil?
Humberto –The Northeast market is pretty interesting because there is a very nice climate and it’s close to Europe. A flight to Europe takes six hours and a half to seven hours, at maximum. If we go to Rio de Janeiro, it’s nine hours. By the way, one of the reasons for the good flight occupation is this existing proximity.
OP – Are flight expansions predicted to happen here?
Humberto – We are seeing if we can make it grow. We are assessing with hotels in Lisbon to see if a Brazilian who wants to go to Europe, before going to Paris, for example, can spend two days in Lisbon free of charge.
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