The Impact of an Old Fleet on the Demand for Air Transportation: The Case of VASP Brazilian Airlines


Introduction

The Viação Aérea São Paulo, known by the great public as VASP Brazilian

Airlines, was created in November of 1933, in São Paulo. The company at first was

investor owned and its first planes were two Monospar, bought from an English airline.

Even though it had a good beginning, the company had constant losses and the only

solution to solve the crisis was asking for government help. On March of 1935, the São

Paulo government agreed to help the company, not lending money but making it a public

company owned half by the state and half by the city of São Paulo. The VASP owners

agreed with that decision, because it was the only way to avoid bankruptcy.

After decades under government control, in 1988, the São Paulo state told the press

that it wished to privatize the company because it still had monthly losses. On October of

1990, on a public auction, the VOE/CANHEDO group, represented by the Canhedo Group

and the VASP employers, bought the company for US$44 million dollars. Until today, the

company is owned by the VOE/CANHEDO group.

After the reelection of Fernando Henrique Cardoso as President of Brazil, the

brazilian central bank decided to devaluate its currency and the airlines suffered a lot

because its debts were in US dollars. One of the biggest problems that VASP faced was that

it had earnings on brazilian currency and had costs in US dollars.

QUndergraduate Student of EPGE/FGV; E-mail: [email protected]

While VASP was facing all this trouble, in 2001, the “low fare airlines boom”

arrived in Brazil. The GOL Linhas Aéreas was a mimic of Jet Blue 1. Its prices were at least

40% less than the airlines operating in Brazil and it did attract costumers. The meal served

inside the plane is quite simple, just cold sandwiches and cereal bars.

VASP that could not compete with the brazilian biggest airlines, VARIG and TAM,

now had a competitor: GOL. At the end of 2002, GOL passed VASP on the brazilian

airline market, making VASP the 4th brazilian airline, after VARIG, TAM and GOL.

Recently, one of VASP airplanes had problems while flying to Fortaleza airport,

Pinto Martins. A week later, another airplane flying from São Paulo to Curitiba had

problems after landing. The land crew tried to fix the problem and after it took off to

continue the flight, the planes remained and the plane had to go back to Curitiba2. One of

the biggest brazilian newspapers said that the VASP fleet was from the 1970s. The VASP

frequent flyers were shocked. Nowadays, VASP and GOL compete for the third place of

the brazilian airline market.

Methodology

According to the microeconomics theory, the demand for a certain object depends

on the price, the price of other similar object and the budget constraint. To help the study,

the quality of services offered by the airlines besides the ones discussed above, we can

include the frequency delay3 and flight time[Young(1972) and Anderson & Kraus(1981)].

Our aim will be to analyze how the quality of services can affect the demand for air

transportation[Douglas & Miller(1974), Anderson & Kraus(1981) and Trapani &

Olson(1982)].

A possible doubt that can come one your mind is how a passenger could measure

the age of the airline that he is fixing to board. The answer it is simple. An older airplane

looks are not good. It looks like it had received a complete patchwork. Indeed, an old

airplane with those kinds of looks could worry some of the passengers.

The data analyzed will be about the Rio de Janeiro – São Paulo flight, because it’s a

major airline route. Three hundred thousand people use this route monthly. As discussed

earlier, VASP tries to get back the thir d place of the brazilian airline market, so our data

will just include GOL and VASP passengers. For the Rio de Janeiro – São Paulo route,

time is very important because the major part is businessmen. We will assume that t is the

complete flight time, including flight time, time needed to get to the airport and the

schedule delay4. Assuming that t is a function of F, the number of flights offered by the

airlines composes it.

(1) ( );