Surge In Litigation Costs Brazilian Airlines $200M Annually

DUBAI—The surge of litigation cases against airlines in Brazil is costing the industry a collective $200 million per year, pushing up airfares, damaging connectivity and stifling competition by discouraging new carriers from entering the market.

That’s according to IATA regional vice president for the Americas Peter Cerda, who said that LATAM Airlines Brasil, Azul and GOL average one lawsuit for every 227 passengers, placing Brazil as the world leader in airline claims. He highlighted that carriers are being held accountable for many false “moral damages” claims, relating to flight delays or lost luggage.

“It almost equates to around one lawsuit for every flight,” Cerda told Routes from the sidelines of the recent IATA Annual General Meeting in Dubai. “If you compare it to the U.S. industry—where there is an average of one lawsuit for every 1.2 million passengers—the difference is stark.”

He explained that the surge in lawsuits is due to favorable legal rulings for consumers and the rise of companies that help convert flight cancellations, delays, or overbooking into legal claims.

Cerda said that such legal liabilities—coupled with high fuel taxes and labor costs—make the Brazilian market challenging for existing players and dampen the appetite for new airlines to enter the country. This is despite Brazilian president Lula da Silva’s stated aim of increasing ultra-low-cost penetration so that air travel is within reach of more people.

“The government wants more airlines, including ULCCs, to enter the market to create more competition but this will not happen as long as Brazil is the country with the most lawsuits in the world,” Cerda said. “We need the judicial system to adapt global best practices, and we need a [Brazilian] congress to impose new regulations that will do away with many of these false claims.”

Cerda added that the opportunity for Brazil’s market to grow is huge, given the number of annual trips per capita stands at a lowly 0.45, compared with 2.5 trips per capita in the U.S, but he said the Brazilian government must put the right conditions in place to make the industry competitive. This includes bringing fuel costs down given jet fuel prices constitute about 40% of Brazilian airlines’ expenses, surpassing the global average of 30%.