By João Machado
The Story of Webjet, Brazil’s Last Low Cost/Low Fare Carrier — Part 1
Editor’s Note: This is the first article in a three-part series on Webjet. Part Two will be published July 21, and Part Three will follow on July 22.
The first decade of the new century brought to Brazil stable economic growth that, for years, was unseen. With millions of people ascending socially and businesses thriving all around the country, demand for air travel was at an all-time high.
Between the deregulation of the 1990s and the growth of the start of the 2000s, a number of unsuccessful ventures tried to capture the price-sensitive population making use of aggressive pricing. GOL Airlines succeeded by exploring this niche. However, one specifically stood out by systematically charging ultra-low fares, an airline that is still remembered to this day: Webjet Linhas Aéreas.
“Webjet was the only national airline that actually managed to implement the low-cost/low-fare model,” Leonardo Marques, founder of Melhores Destinos, the largest airfare deals website in Brazil, told AirlineGeeks. “Certainly the fact that it managed to build a really lean structure was determinant for it to offer really cheap fares in the main domestic destinations.”
Indeed, in the “golden” years of the airline, Webjet managed to continuously offer the cheapest fares and, from time to time, deals that shook up the market, especially in the years between 2009 and 2012. The path to its short-lived success, however, was difficult and more complicated than often thought.
The favorable economic scenario in Brazil saw, counterintuitively, the bankruptcy of airlines which helped to dictate the path of the industry in the 20th century, but which failed to adapt to a new era of low costs and cheap fares: Transbrasil in 2001, VASP in 2005 and VARIG in 2006, the three painfully declining in the years before their closures.
In 2005, as GOL and TAM quickly swallowed larger chunks of the market over a weakened VARIG, a group of investors saw an opportunity: to emulate the business model which made GOL a superpower, radicalizing it to make costs even lower. This airline would be a synonym of “low-cost/low-fare” in Brazil on the years to come: Webjet Linhas Aéreas was born.
2005: A Troubled Start
Webjet was led by Rogério Ottoni, a lawyer who had previously directed the corporative matters department of the pioneer of budget travel in Brazil, Fly Linhas Aéreas, that went bust in 2003. Along with a group of four investors, Ottoni raised 10 million Brazilian reals — about $4.26 million at the time, or $5.6 million in current values.
Despite the small-capitalization, Ottoni aimed high. Initially based in Rio de Janeiro and flying a single 737-300, Webjet expected to carry 500,000 passengers in its first year of operations, with expected revenue of 120 million reals ($22.4 million), as per reports from the time.
Two crucial pieces of Webjet’s business model differed greatly from GOL’s. First, the airline would charge the same fare for every seat, only eventually changing the price according to demand behavior. Second, it would only sell its tickets directly to passengers, through its website or via telephone bookings. Prices for its inaugural flight connecting Rio de Janeiro/Galeão to Brasilia, reported ISTOÉ Dinheiro at the time, would cost 238 real, against GOL’s 319 real.
As expected, competitors did not stand still with the newbie in the market, quickly reacting to Webjet’s launch prices. The company initially opted for a network connecting high-traffic markets, where it directly competed with GOL, TAM and VARIG.
While the first month of operations — July 2005 — saw a reasonable load factor of 59% with 13,826 passengers carried, the subsequent months saw a free fall in traffic. In August, despite a capacity that was 55% higher, Webjet transported fewer passengers than in July — 12,957 — with a load factor of 35.4%.
The same trend was seen in September. While capacity was reduced by more than 26% when compared to August, traffic fell by more than 29%. The load factor fell to 34% and only 8,934 passengers were carried.
With these upsetting numbers and no sign of recovery, Webjet’s management team started taking panic measures to prop revenue up. In September, the airline changed its marketing by allowing ticket sales through travel agencies. In October, it also started flights to two new destinations: Belo Horizonte and Florianópolis. All of these tactics proved to be worthless.
In October, even fewer passengers were transported: 8,316. For three days, the airline even decided to cancel all of its flights, claiming the move was meant as a response to low load factors. To Folha de São Paulo, Rogério Ottoni even pleaded for passengers’ trust at the time, saying, “The construction of a company in this industry passes by the passenger. It may be utopic, but we convoke society to do that.”
Suffocated by the competition and continuously losing cash, Webjet gave up in November, paralyzing all its operations. Back then, Ottoni publicly blamed a coordinated action of the major airlines to bring fares down and take the startup out of the market. Before fully stopping, the airline mentioned it was considering charter flights and even carrying cargo to assure its survival, but it was too late.
This story will continue with Part Two. Once published, click here for Part Two (July 21) and Part Three (July 22).