Airline mergers and acquisitions seem to be just like London buses, nothing for a while and then suddenly three come along all at the same time! With the Korean/Asiana merger nearing completion and TAP Air Portugal destined for new ownership in 2025, the proposed GOL/Azul merger is about to be referred to the regulator. We’ve covered the Korean/Asiana “wedding” previously, now let’s look at the implications of the GOL and Azul merger.
The first thing to note is that most airline mergers are a function of necessity, with a stronger airline seeking to acquire a smaller operator who may be struggling in terms of market size or network. In some cases it’s a matter of saving an airline from collapse and in others, it’s about trying to create a more profitable airline. It’s rare to see a proposed merger like GOL and Azul, where both are of similar size, network and strategy, and are experiencing significant loses. This merger, regardless of who is acquiring whom and why, is about a more basic instinct: survival.
An Already Concentrated Airline Market in Brazil
Many mergers are about consolidation in a fragmented market and there are plenty of examples of airline consolidation transforming the profitability of the industry, the United States being a very good example. But the Brazilian market is already concentrated, as the data below confirms. Including both international and domestic capacity the two airlines had a 40% share of capacity in 2024, and in the domestic market that increased to 47%. Any planned merger – subject to approval – would not only create the single largest domestic airline but would also place 75% of capacity in the hands of two airlines, which would certainly be of interest to the regulators.
Key Comparisons
Comparing the two airlines in terms of size, scale and operation, they would appear to be very similar as the table below highlights, but when you look at their types of operation, the networks are very different. While in total capacity terms the two airlines are similar, Azul operate 99% of their services within the domestic market while GOL has at least 5% of their schedules allocated to international services. Azul operate 422 domestic routes – which seems a staggering level of coverage while GOL operate less than half that network size. Brazil has for decades been a classic “boom and bust” market with rapid capacity growth from new airlines being followed by subsequent dips in capacity as the economy suffers another collapse, followed by the same cycle being followed a few years later; the one constant through all those cycles is that the airlines have been hugely unprofitable, and that may be the case this time around as well.
Profitability May Be the Reason
It’s tough to be profitable in the airline industry. While IATA proudly claim that 2025 will be a record year for the airline industry, strip away a few key facts and the truth is quickly exposed. A large proportion of the industry’s expected profits are based in the North American market with the “Big Four” leading the way. In Europe the combination of major legacy and LCCs (low-cost carriers) add a valuable contribution, while in the Middle East and Asia a select group of carriers feed the balance of that profitability. Collectively, less than 50 airlines will underpin that projected record profitability, but for the rest of the airlines around the world, 2025 will be another year of struggles and likely losses. And the KPIs for both Azul and GOL in the last few years highlight how big that challenge is.
The results of both Gol and Azul reflect how hard the market has been in Brazil, with both recording losses in 2023 and most likely through last year (we’ll know when results are announced). Collectively the two airlines since 2019 have lost over US$ 6.6 billion. For two airlines riding the pandemic recovery the results go to the very heart of why they perhaps are looking at a merger; the current losses are just unsustainable in 2025 and beyond.
Key Considerations in the GOL and Azul Merger
Given the domestic market share that a combined GOL/Azul operation would have it’s no surprise that there is significant network overlap. Whether the frequency of service would be maintained is a key question. On key markets such as Sao Paulo Congonhas to Rio De Janeiro Santos Dumont the current collective 44 daily services may be excessive but necessary, however, head-to-head services on some of the longer domestic routes may offer potential for frequency adjustments should the merger proceed. Typically, in such situations the regulator seeks assurances about levels of service and remedial actions such as releasing slots in some markets for competitors to use, although that often has minimal impact on the market structure. But perhaps the bigger question will be around how the fleet would be adjusted or indeed, could it be adjusted?
While Azul are principally an Airbus, ATR and Embraer operator with outstanding orders for 187 aircraft, GOL are wedded to a Boeing fleet with 120 active aircraft and an existing order for another 139 (although quite when they will be delivered is anyone’s guess now). With both ATR and Embraers, the Azul fleet is certainly more flexible and importantly the right size for the market, whereas the pure B737 fleet of GOL may tick all the boxes of efficiency and scale but can be limiting in terms of operating those smaller markets. Ultimately, fleet decisions and changes take time but should be an early and crucial consideration in weighing up the value of the merger for both airlines. Fleet flexibility leans towards the Azul operation, but GOL are a very large Boeing customer, and the manufacturer will do everything to keep a merged airline as a customer in the coming years.
Will Regulators Approve?
Airline mergers attract a lot of regulatory attention, not just domestically but across international markets, and securing the necessary approvals will probably be a lengthy and expensive process for the two airlines. Equally the regulators in this case are being presented with a fait accompli: apply excessive regulatory requirements and the merger will collapse, reject the merger and it’s likely that the two airlines will have to radically adjust their current networks and impact consumer choice. This may be a case where the regulator applies a very light touch in exchange for giving approval, perhaps with some requirements about maintaining services in secondary smaller markets.
Whatever happens, there seems to be a very strong case for some consolidation in the market or the current operating performances of both Azul and GOL suggest that they will need to make some significant changes to their operations. Whether that happens as a combined entity or as two individual airlines is the key question.
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