BRASILIA (Reuters) - Brazil is considering measures to shield its air travel industry from global markets turmoil even as domestic demand for trips remains strong in Latin America’s most populated nation, Civil Aviation Minister Wagner Bittencourt said on Wednesday.
Demand for domestic flights will likely grow between 8 percent to 10 percent this year, outpacing the local economy, but below the 17 percent expansion seen last year.
“It is a very volatile sector, a risky sector that could easily see instability in the viability of the business during a period of crisis or when volatility hits the exchange rate and oil prices,” Bittencourt told the Reuters Latin America Investment Summit on Wednesday.
“The government is analyzing a series of issues and it’s worried about the competitiveness of the sector.”
He declined to give details about the possible measures, but said the government could not rule out any tools.
The local currency, the real, has weakened more than 7 percent this year, which increases the cost of airplane leasing for local airlines and the price of jet fuel.
The government of President Dilma Rousseff has cut taxes for specific industries over the past months to revive an economy that has flirted with recession since mid-2011. Last week, her administration cut taxes for the key automotive sector and reduced the cost of car loans for consumers.
A slew of monetary and fiscal stimuli has so far failed to jump-start the economy as the government worries a gloomy global outlook could further hit activity. Brazil is expected to grow 3 percent this year, barely above the 2.7 percent seen in 2011.
Bittencourt, an engineer who headed the infrastructure portfolio of Brazil’s giant development bank BNDES, said the government wants to boost infrastructure investment in the sector to support Latin America’s largest economy.
The economy faces serious challenges to grow above 4 percent per year due to what is dubbed as the ‘Brazil cost’: a mix of high taxes, red tape and infrastructure bottlenecks that raises costs for local businesses.
Rousseff has demanded government ministries and state-run companies step up spending in the second half of the year.
Bittencourt said Brazil is on track to refurbish major airports to accommodate the tens of thousands of travelers who will flood the country during the 2014 soccer World Cup.
“The projects will be done on time for the events that we have ahead like the world cup,” said Bittencourt.
Experts have warned that Brazil is way behind schedule to finish key infrastructure projects like public transportation, roads, stadiums and airports.
In February, Brazil awarded about $14 billion in private contracts for improvements at three key airports to prepare for the soccer event. The move raised hopes that the country was taking a market-based approach to fix its aging infrastructure.
Bittencourt said the government has not ruled out more private participation to improve airport infrastructure in the future.
“Everyone is interested. Many of these companies are back here saying that they are interested in new airport (projects),” Bittencourt said. “International interest in our (air travel) sector continues as strong as before or even stronger.”
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Writing by Alonso Soto; editing by M.D. Golan