Iberia Heads Deeper Into Brazil

Oneworld member Iberia has announced that it will add new scheduled services in February with the addition of routes to Fortaleza and Recife. Can Iberia make services to these regional Brazilian markets work?

The new Iberia routes will begin in February 2011, linking Madrid with two new city pairs. The route will be operated thrice-weekly with A340-300 aircraft and will operate from Madrid to Fortaleza with an extension flight to Recife.

IBERIA STRATEGY

Iberia currently serves the main Brazilian gateways of Rio de Janeiro, on a daily basis, and Sao Paulo thirteen times weekly. Serving regional markets in Latin America is a strategy that most carriers would not engage, and can only be undertaken with strong Latin America credentials. This fragmentation of the Brazilian gateways can only be undertaken by Iberia and TAP Portugal, with other carriers leaving this type of market to their regional partners. There has been encouragement by the oneworld alliance for Iberia to concentrate on the markets that it serves well. IATA BSP data shows that over 4.2 million O+D passengers travelled between Europe and Brazil between June 2009 and 2010, with scope for Iberia to grow its services.

SOURCE:IATA BSP data (Airport IS)

For Iberia and oneworld it is a step into Star Alliance territory. TAP Portugal operates 62 weekly flights from Portugal into Brazil, with 58 weekly flights from Lisbon to nine destinations, and four weekly services from Porto to Rio and Sao Paulo. This is strengthened with the connectivity that TAM, as its Star Alliance partner, is able to offer in Brazil, where TAM is the largest operator in terms of weekly flights offered with 40% of all scheduled flights being TAM's.

Iberia, however is the perfect airline to attempt to gain market share for oneworld: although the market is larger in Portugal than Spain, Iberia can certainly offer more of Brazil than any other carrier, with the exception of TAP Portugal.

The location of Madrid provides behind Madrid connectivity from markets such as the UK. The UK to Brazil market is illustrative of this. Between June 2009 and 2010, over 435,000 O+D passengers flew between the UK and Brazil, with only BA and TAM having a daily rotation each. TAP Portugal benefitted from the leakage in this market accounting for 26% of the O+D market and Air France had 12%. The new Iberia services will allow increased frequency of its partner carrier Iberia to capture the UK source market and feed Iberia into Brazil through its Madrid Barajas hub.

The decision by Iberia to operate a triangular route to Fortaleza and Recife will lessen the risk of the new services whilst there is currently no alliance partner in Brazil. However the merger of LAN and TAM in Latin America may well improve connectivity in Brazil in the future.

The new services are leisure markets and suggest that Iberia is chasing leisure revenues rather than looking to augment its existing Latin American network. Its oneworld partner in Latin America, LAN does not serve either Fortaleza or Recife, meaning that Iberia has to use its own metal rather than serving through codeshare agreements.