The CEO of TAP Air Portugal, Luis Rodrigues, said at an event in Lisbon that the soon-to-be-privatized national airline is prepared for bullish growth in Brazil and Africa. The airline already flies to 13 Brazilian cities and 14 African destinations, including cities across Portuguese-speaking nations on both continents. Large markets for the company include Angola and Mozambique.
Rodrigues cited Brazil’s huge opportunity, with a tourism market that accounts for around 6% of GDP, as opposed to 16% of Portugal’s GDP. Africa also offers immense potential despite some constraints. The airline’s geographic balance across North America, South America, Europe, and Africa offers incredible diversity. The airline sees opportunities to continue simplifying its geographic presence across the continents, seeing upside in maintenance and engineering synergies. The Portuguese government plans on selling 44.9% of the airline to private buyers, with an additional 5% being sold to employees.
What Is TAP Air Portugal’s Potential Next Move?
TAP is currently excited because it believes it has a head start in two of the markets where it anticipates growth accelerating the fastest. The airline currently serves 13 Brazilian cities and 14 in Africa, including Portuguese-speaking cities in Angola and Mozambique. The airline does not need to build brand relationships in these regions, nor does it need to secure airport access entirely from scratch.
These links create a valuable visiting friends and relatives (VFR) dynamic, while Lisbon still serves as a principal connecting node between Brazil, Africa, Europe, and North America. Further privatization, including the addition of a larger airline partner, would help the airline add capital, aircraft, and marketing capabilities that would allow it to scale its network. These large, under-tapped markets could provide TAP with the runway for growth it so deeply desires, according to Investing.
What Would Privatization Mean For TAP Air Portugal?
There are relatively few carriers that resemble TAP Air Portugal in pretty much any way. The airline serves as a unique transatlantic linchpin, and Portugal’s relatively weaker economic status in relation to many of its peer nations makes the airline mostly oriented toward serving demand from leisure travelers, a demographic that has a fundamentally different set of demands than premium travelers. As a result, it is not surprising that the airline is interested in privatization, especially since it would see the carrier transform from a long-haul legacy airline with a relatively unique business model to a spoke in a larger network.
Lufthansa Group, Air France-KLM, and the International Airlines Group (IAG) are all major airline conglomerates that have begun to increasingly control the market in these regions. Legacy airlines are looking to continue adding to their networks, and players like TAP Air Portugal are increasingly in high demand. The upside for investors is fairly obvious from this kind of transaction, but the impact on passengers is a little less clear.
Long-haul operators like Lufthansa or IAG would certainly be able to offer passengers improved optionality in the form of better partnerships, loyalty monetization, and ease of travel. However, the regulatory barrier could prove harder to clear, especially if the European Union wants to prevent further consolidation in the industry.
What Is The Bottom Line?
At the end of the day, TAP Air Portugal is a carrier that aims to connect different elements of the Portuguese and non-Portuguese speaking worlds through convenient, reliable air service. The airline has never had the premium-oriented model of many of its peers, especially those that have primarily relied upon serving business travelers.
Nonetheless, the airline does have a strong growth trajectory. The kinds of leisure destinations served by TAP Air Portugal are exactly those that continue to see bullish growth. The CEO’s rhetoric was quick to confirm this and aligns with our view of most of these markets.
There are a handful of headwinds the airline will need to manage. Shifts in travel demographics happen all the time, and the airline’s interest in serving destinations that are otherwise unserved is not without risks of its own.
