Brazilian Flyers Make Run on Varig Bank

Brazilian Flyers Make Run on Varig Bank

The bankruptcy of Latin America’s biggest airline, Viacao Aerea Rio-Grandense (Varig), has set off a rush by Brazilians to unload frequent flyer miles, according to Bloomberg News.

Concerned the airline will liquidate, film producer Hilton Kauffmann used his awards to upgrade from economy class for the first time in August. Schoolteacher Luciana Martins began an Internet sale of her 140,000 Varig miles. Carlos Eduardo Carvalho, a fixed-income trader, traded in his remaining miles for a flight from Sao Paulo to Florianopolis.

“I’m burning my miles because I don’t want to lose them,” Kauffmann told Bloomberg’s Romina Nicaretta.

The 78-year-old airline carried 56 percent of the 51 million passengers who flew domestic or international on Brazilian airlines in 2004, the nation’s civil aviation agency said. Varig, based in Porto Alegre, filed for bankruptcy protection in June.

Varig Chairman David Zylbersztajn met in August with Brazilian Vice President Jose Alencar and Senate President Renan Calheiros in a bid to win government support for the company’s proposal to cut more than 1,000 jobs, or 13 percent of its work force, next year and to renegotiate 7.7 billion reais of debt.

“The reorganization plan isn’t going to make miracles happen,” Varig President Omar Carneiro da Cunha said in a written response to questions. “We don’t have a second chance. Failure is not an option.”

Concerns Varig will collapse have generated business for an informal network of brokers in the country who buy and sell miles from some of the airline’s 5 million frequent flyers.

Varig, which is controlled by its employees, sought bankruptcy protection after losing 5.45 billion reais between 2000 and 2004 because of rising fuel costs and competition from low-cost carriers. The airline stopped flying to five Brazilian cities this year and plans further service reductions.

Shares of Varig have dropped 32 percent this year despite a 22-percent gain in Brazil’s benchmark Bovespa stock index.

Varig adds as many as 50,000 members a month to Varig Smiles, the frequent flyer program it started 11 years ago.

Should the company go out of business, consumers have the right to reimbursement for their miles, said Maria Christina de Almeida Oliveira, a consumer-rights consultant at the Sao Paulo state consumer protection agency.

“But they will have to file for it with the court and get in line with other creditors,” she told Bloomberg.

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