Brazilian startup Azul Linhas Aereas Brasilias is closing in on a 10% share of Brazil’s domestic traffic, and it appears the majority of these gains come at the expense of the country’s largest operator, Grupo TAM.

Azul accounted for 9.14%, or 624.9 million revenue passenger kilometers (RPKs), of all domestic traffic in October, according to data from Agencia Nacional de Aviacao Civil (ANAC), Brazil’s civil aviation authority. The gain was a 2.51-percentage-point improvement on the same period last year and outpaced the 1.91-point increase in the carrier’s capacity share, which rose to 6.63%.

This growth was achieved on a major expansion, with capacity increasing 50.9% to 762.5 million available seat kilometers (ASKs) and traffic rising 50.1%. Azul’s load factor, however, dipped about 0.4 points to 82%.

Azul’s growth solidifies the airline’s position as Brazil’s third-largest operator in a country dominated by TAM and its rival, GOL Linhas Aereas Inteligentes. The next-largest operator, Webjet Linhas Aereas, commanded 5.81% of all traffic in October, up from 5.64%, while operating 5.53% of the country’s capacity. Webjet’s improvements reflect a lower growth than Azul, with supply rising 18.9% year-on-year to 558.7 million ASKs and traffic 12.1% to 396.8 million RPKS. Webjet’s declined 4.3 points to 71%.

Brazil's fifth-largest operator is now TRIP Linhas Aereas, which boosted its traffic share traffic to 3.8% from 2.1% on a near doubling in demand to 260.1 million RPKs and an 86.6% rise in supply to 409.1 million ASKs. Loads are below those of Azul and Webjet, although at 63.6%, TRIP’s load factor is up 3.5 points from October 2010.

TRIP’s growth pushes Avianca (through its purchase of Oceanair) down to sixth place within Brazil, although the carrier still improved its traffic share 1.2 points to 3.7% on roughly the same percentage of supply. Avianca’s loads also went up, by more than nine points to 80.1% as a 41.4% increase in ASKs to 319 million generated a 59.8% rise in traffic to 255.6 million RPKs.

While Azul’s growth is impressive, the country’s two giants, TAM and GOL, still command significant portions of Brazil’s domestic market. TAM held 36.6% of total traffic in October and provided about 40.5% of all ASKs, even though this marked year-on-year declines of 3.6 and 4.2 points, respectively. From ANAC’s data it is clear why Brazil’s smaller carriers are impinging on TAM’s market share: the carrier added only 2.3% more capacity to the 4 billion ASKs operated in October 2010, and traffic was statistically the same as last October.

TAM’s loads also fell slightly, dropping 1.6 points to 63.6%.

GOL’s 13.1% year-on-year rise in capacity to 3.9 billion ASKs, while generating only 3.5% more traffic and wiping more than six points from October 2010’s 71.2% load factor, did help the carrier retain most of its market share, which stood at 37.1% of traffic and 38.4% of supply in October.

TAM and GOL are both in talks with smaller rivals, with TAM close to finalizing an investment in TRIP that will give it a 31% stake in the carrier. GOL, meanwhile, is awaiting regulatory approval for its merger with Webjet.

For international services, TAM continues to cement its role as Brazil’s long-haul operator by adding almost another percentage point to the 87.7% market share held in October 2010 and almost two points to its share of capacity on a 4.3% improvement in RPKs to 2.4 billion and a 6% rise in supply to 2.3 billion ASKs.

GOL’s international market share, meanwhile, fell in October from 12.5% to 10% due to a 17.9% decline in ASKs to 350.7 million and 15.8% fewer RPKs, which dropped to 227 million. New entrant Avianca, which started transborder services in December 2010, held 1.56% of international market share in October and operated 1.46% of all capacity; it flew 40.9 million ASKs in October and posted traffic of 35.4 million RPKs.