VZCZCXRO9031
PP RUEHRG
DE RUEHSO #0301/01 1651525
ZNR UUUUU ZZH
P 131525Z JUN 08
FM AMCONSUL SAO PAULO
TO RUEHC/SECSTATE WASHDC PRIORITY 8313
INFO RUEHBR/AMEMBASSY BRASILIA 9443
RUEHAC/AMEMBASSY ASUNCION 3424
RUEHBU/AMEMBASSY BUENOS AIRES 3176
RUEHCV/AMEMBASSY CARACAS 0760
RUEHME/AMEMBASSY MEXICO CITY 0838
RUEHMN/AMEMBASSY MONTEVIDEO 2726
RUEHLP/AMEMBASSY LA PAZ 3835
RUEHSG/AMEMBASSY SANTIAGO 2424
RUEHRI/AMCONSUL RIO DE JANEIRO 8755
RUEHRG/AMCONSUL RECIFE 4134
RHEHNSC/NSC WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC 3111
RHMFISS/CDR USSOUTHCOM MIAMI FL
RUEAIIA/CIA WASHDC
RHMCSUU/FAA NATIONAL HQ WASHINGTON DC
RUEAYVF/FAA MIAMI ARTCC MIAMI FL
RULSDMK/DEPT OF TRANSPORTATION WASHDC
RUEHC/DEPT OF LABOR WASHDC

UNCLAS SECTION 01 OF 03 SAO PAULO 000301 
 
SENSITIVE 
SIPDIS 
 
STATE FOR WHA/EPSC AND EEB/TRA - TROBL, YVLIMAYE-DAVIS 
STATE PASS USTR FOR KATE DUCKWORTH 
FAA FOR BAHUMADA, CTFRANCESCHI 
DEPT OF TRANSPORTATION FOR BHEDBERG 
BUENOS AIRES FOR TSA ATTACHE 
MEXICO CITY FOR TSA ATTACHE MGALVAN 
NSC FOR GTOMASULO 
TREASURY FOR JHOEK 
SOUTHCOM FOR POLAD 
USAID FOR LAC/AA 
 
E.O. 12958: N/A 
TAGS: EAIR PREL PGOV ECON EINV BEXP BR
SUBJECT: U.S. AIRLINES DIFFER AHEAD OF BILATERAL NEGOTIATIONS 
 
SENSITIVE BUT UNCLASSIFIED--PLEASE PROTECT ACCORDINGLY 
 
REF: A) SAO PAULO 090; B) BRASILIA 0222 
 
¶1.  (SBU) SUMMARY:  U.S. aviation companies are of a mixed mind 
about expanded passenger routes between the United States and 
Brazil.  On the one hand, rising fuel prices and a tightening market 
globally are weighing on the business decisions of the four U.S. 
carriers operating in Brazil (American, Delta, United, Continental). 
 On the other hand, supply and demand fundamentals are out of 
balance, with passenger demand for flights to the U.S. at an all 
time high and some U.S. carriers reporting that their seats are sold 
out well in advance.  ConGen Sao Paulo contacts with the U.S. 
carrier local representatives reveal that they are not likely to 
speak with a unified voice ahead of the bilateral negotiations 
scheduled for June 24-25.  END SUMMARY. 
 
---------------------- 
DELTA POISED TO EXPAND 
---------------------- 
 
¶2.  (SBU) Of the three airlines' local representatives ConGen Sao 
Paulo has spoken to in recent weeks, Delta Airlines appears best 
positioned to seize on additional frequencies to the North and 
Northeast of Brazil.  Luiz Henrique Teixeira, Delta's Country 
Manager for Brazil, told the Consul General that Delta is prepared 
to begin operating flights to Manaus and Fortaleza with available 
Boeing 757 aircraft.  Teixeira reported that Delta's headquarters 
has agreed to the plan for five weekly flights Manaus-Atlanta and 
three weekly Fortaleza-Atlanta.  Delta envisions eventual onward 
flights from Manaus to Brasilia. 
 
¶3.  (SBU) In addition to Sao Paulo and Rio de Janeiro, Delta is 
focusing on the following cities in order of priority: Manaus, 
Fortaleza, Salvador, Recife, Brasilia, Curitiba and Belo Horizonte. 
Because Delta only has 757's available right now for new routes, 
Manaus and Fortaleza are most realistic in the short-term.  Teixeira 
said that Delta has been in touch recently with the governors of 
Amazonas (Manaus), Ceara (Fortaleza), Pernambuco (Recife), and Bahia 
(Salvador) to encourage them to take an active role in encouraging 
Brazil's National Civil Aviation Agency (ANAC) to agree to 
additional frequencies to their respective states.  Teixeira 
expressed concern, however, about rumors he has heard that the 
negotiations will result in USDOT earmarking any new frequencies for 
low-cost carriers. 
 
¶4.  (SBU) Longer haul flights would require a 767 or 777, which 
would have to be taken from existing routes.  Delta's country office 
recognizes that this would require negotiating with Delta's 
headquarters, but the country office envisions twice-daily 
Rio-Atlanta flights year-round in the future.  Also prominent on 
Delta's wish-list are direct flights to Orlando from Brazilian 
cities, as New York and Orlando are Delta's two most profitable 
destinations. 
 
-------------------------- 
AMERICAN & UNITED CAUTIOUS 
-------------------------- 
 
¶5.  (SBU) American Airlines (AA) and United Airlines (UAL) told the 
 
SAO PAULO 00000301  002 OF 003 
 
 
Consul General that high fuel prices and the general feeling of 
crisis in the U.S. aviation market translates into less 
opportunities for their companies in Brazil.  UAL's General Manager 
for Latin America, Josue Meza, said that if negotiations succeed in 
obtaining additional frequencies for U.S. carriers, it would be a 
"tough decision" for UAL to dedicate additional aircraft to Brazil. 
(Note:  In the event that UAL's situation globally changes, their 
priority cities in Brazil, in order of importance, would be: Sao 
Paulo, Rio, Belo Horizonte, and Porto Alegre.  End Note.)  Given the 
growing demand for flights, and the Brazilian market's role as UAL's 
most important in Latin America, UAL is planning to expand their 
service by making the non-stop Rio-Dulles permanent by September and 
upgrading the aircraft for the Sao Paulo-Dulles route to a 777. 
This will expand UAL's service by 67 percent, adding 300 additional 
seats a day, without increasing frequencies or aircraft. 
 
¶6.  (SBU) AA's Country Manager Erli Rodrigues told Econoff that 
"with fuel prices so desperate, American globally is looking to take 
drastic measures.  The timing of the negotiations is difficult 
unless the route is really appealing."  (Note: Rodrigues told 
Econoff that American's headquarters will be sending the Department 
of Transportation a letter outlining their position on the 
negotiations in the coming days.  End Note.) 
 
------------ 
CODE-SHARING 
------------ 
 
¶7.  (SBU) On code-sharing, UAL noted that they are pleased with 
their current code-share arrangements with TAM and are hopeful that 
TAM will join the Star Alliance.  Delta's Teixeira told the Consul 
General that he expects by the end of 2008 that Delta will have 
code-sharing with Varig and that Varig will be a member of the Sky 
Team (of which Continental is also a member).  If these negotiations 
proceed as expected, American would be the one U.S. carrier that 
does not have a code-share or alliance arrangement in place or under 
negotiation with a Brazilian carrier. 
 
----- 
VISAS 
----- 
 
¶8.  (SBU) The transit visa issue is one that weighs equally on the 
U.S. and Brazilian carriers.  United told the Consul General that 
given UAL's expansion into the Asian market, the transit visa is 
problematic.  Delta noted the issue as a consideration, but said 
that they are still eying Brazil-to-Asia passengers.  In fact, 
Teixeira noted that there are four new Chinese factories going into 
Manaus and Delta is envisioning linking passengers 
Manaus-Atlanta-Shanghai. 
 
------------------------------------- 
GUARULHOS PARKING DISPUTE STILL ALIVE 
------------------------------------- 
 
¶9.  (SBU) With regards to the Guarulhos airport parking fee dispute 
(REF B), UAL said that while the issue still remains unresolved, it 
has "calmed down."  Delta's Teixeira said that none of the airlines 
are "comfortable with where things are" and said that ANAC appears 
to be in waiting mode.  Teixeira said that ANAC was planning to 
visit IATA in the coming weeks to look at best practices for 
 
SAO PAULO 00000301  003 OF 003 
 
 
handling airport congestion.  Teixeira said that ANAC's Director 
Solange Vieira recently told the industry that no definitive 
decision should be expected before September or October when 
complete fare deregulation for flights to Europe and the U.S. is 
expected to come into effect.  (Note:  This will be the third 
extension of ANAC's own deadline.  Initially a decision was expected 
by March, then extended to May.  End Note.) 
 
¶10.  (SBU) Of the three carriers ConGen Sao Paulo contacted, 
American Airlines expressed the most frustration with ANAC's delay 
in resolving the dispute.  Rodrigues told Econoff: "Although 
indications are that [the proposed drastic fee increase] is not 
going to happen, we are not going to talk about new investments with 
something like that still in the air. We need a decision from ANAC." 
 
 
------- 
COMMENT 
------- 
 
¶11.  (SBU) Based on our discussions locally, Delta appears to be the 
only U.S. airline in a position to take quick advantage of eventual 
new routes to the North and Northeast.  UAL is expected to 
concentrate on adding seats by upgrading their service on existing 
routes, but is not likely to seize on new opportunities.  The timing 
is inauspicious for American to seize on additional routes, and 
American is the only one of the four that does not have a code-share 
or alliance arrangement in place or under negotiation with a 
Brazilian carrier.  American's current commanding position as the 
lead U.S. carrier in Brazil, coupled with the fact that they are in 
a difficult situation globally, may mean that AA stands to gain the 
least from adding additional frequencies at this juncture.  It is 
noteworthy that the airline that is most outspoken on the parking 
issue is also the one that currently is least prepared to take 
advantage of increased liberalization.  END COMMENT. 
 
¶12.  (U) This cable was cleared by and coordinated with the Embassy 
in Brasilia. 
 
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