Unlike most other aviation markets in Latin America, Brazil's recovery remains weak. The country hit a plateau from 2015 until 2019 due to macroeconomic headwinds (see chart below). The post-pandemic revival meant that it was only in 2024 that the country finally reached 2019 passenger volumes, mainly due to international growth, while the domestic market is still behind.

A unique mix of events will likely continue to suppress the market in the short term.

The main reason for the slow recovery is that Brazil’s three main carriers, LATAM, Gol, and Azul, have each faced major financial reorganizations since the onset of the pandemic. This process typically includes a severe fleet and capacity reduction initially to streamline the operations. LATAM initiated its Chapter 11 process in 2020, completing restructuring in 2022 and subsequently expanding capacity and passenger numbers.

Gol entered bankruptcy protection later and only exited successfully in mid-2025, and now signalling renewed fleet growth. Azul, the last of the three, filed for Chapter 11 in May 2025. Though Azul maintains that operations remain uninterrupted and aims to exit by year-end, its restructuring includes a planned 35% reduction in its future fleet size. This may hit smaller, regional routes the hardest, especially given its point-to-point network strategy connecting under-served airports.

On the other hand, successful exits of other Latin American airlines have proven that, in the long term, a more sustainable airline operation emerges, benefiting the market overall.

Comparing Airline Recovery Paths

GOL, Azul, and LATAM have split the Brazilian domestic market relatively evenly. In 2020, the airlines carried around 50% fewer passengers than today. Azul was the quickest to recover and maintained a relatively similar fleet size in operation.

LATAM passed through its restructuring process in 2021 and 2022, growing thereafter to surpass 2019 (domestic) passengers in 2023, while Gol is yet to achieve that goal. During 2024, when the airline’s restructuring was ongoing, capacity was reduced as the chart below shows.

Gol, a relative newcomer to the market, has confirmed strong fleet growth now that it has successfully left its restructuring process. The airline plans to grow its fleet by some 20%, taking delivery of previously ordered Boeing 737 aircraft (see chart above).

As of mid-2025, Azul is operating around 191 aircraft and has 49 firm orders outstanding. However, returning aircraft currently operating to lessors will likely cut capacity in the short term, before further expansion. With the interchanging growth prospects of Azul and Gol, a status quo in domestic airline capacity is expected for now.

Gol and Azul Merger, Plus Tax Reforms

Besides the airline restructurings, there are other changes afoot. Firstly, there is a possible merger between GOL and Azul. A signed non-binding memorandum of understanding—initiated by Abra Group (GOL, Avianca, Wamos) in January—envisions a combined carrier controlling roughly 60% of the domestic market.

However, the deal is at risk due to Azul's recent entry into Chapter 11, as well as reduced market competition concerns. Route network and capacity optimization will likely be introduced once the airlines merge, which could limit choice and capacity.

Another significant risk looming over Brazil’s aviation sector is a proposed overhaul of the national tax system, specifically the introduction of a dual value-added tax (VAT) structure—known as CBS (Contribuição sobre Bens e Serviços) at the federal level and IBS (Imposto sobre Bens e Serviços) at the state and municipal level.

Currently, airline tickets in Brazil benefit from sector-specific tax treatments and exemptions on leasing, fuel purchases, and maintenance, often negotiated individually by state governments to support regional connectivity. The proposed VAT model would eliminate the ability for specific negotiations, as aviation will be fully integrated into the general tax system.

According to LATAM Brasil’s CEO Jérôme Cadier, this shift could increase airfares by as much as 25%—a change that could significantly dampen demand.

Airport Ownership Changes

Despite the prevailing uncertainty, the airport market remains active, though this is likely to have a significant impact on valuations. This year, CCR (now Motiva) launched efforts to sell its airport concessions in Brazil and other markets to reduce debt and re-focus on toll roads. These include mid-sized Brazilian airports like Confins (Belo Horizonte), Natal, Londrina, and Goiânia, among others.

Meanwhile, the government is developing a program to include small regional airports within existing concessions. Current concessionaires are being invited to upgrade and expand infrastructure in exchange for incentives such as extended contracts (up to five additional years), discounts on fees, and reduced tariffs.

Plans remain for a new concession auction for Rio’s Galeão Airport by Q1 2026. São Paulo’s Viracopos, a key hub for Azul, is also on the re-tender but faces legal challenges.