Azul is seeing promising signs in business demand as corporate travel volume recently reached pre-pandemic levels.
Airline President Abhi Shah, in an Aug. 10 earnings discussion with analysts and investors, said during two of the last four weeks, “corporate volumes have been 100% of 2019.” Azul’s corporate revenue is up 43%, “but in terms of volume, it’s very good to see that we’ve now recovered 100%,” Shah said. He noted Azul’s corporate survey showed corporation executives “will fly more the second half of the year.”
As corporate volumes are restored, other trends look favorable for the Brazilian carrier. Shah says booked average fares for July were higher than last year’s and are 30% higher than in May. The second half of the year is a higher demand period in Brazil.
“We’re going to be coming into a favorable demand environment, a favorable pricing environment,” Shah said, explaining Brazil’s domestic market this year is growing at roughly 3% compared to 2019, “it’s about roughly half what the U.S. market is doing.”
Azul recently completed the last step of a comprehensive and permanent capital optimization plan, Raymond James analyst Savanthi Syth said in a research note. The airline has extended debt maturities with no significant ones until the end of 2028. Syth said Azul also issued $800 million of senior secured notes at 11.93%, “the lowest annual coupon among peers in the region.”
Syth said the changes were necessary to complete the renegotiations with lessors and OEMs that Azul announced in March. Those deals are expected to be concluded no later than September, she said. Azul has estimated its lease payments in 2023 will fall by 1.5 billion reals ($300 million) and 1.1 billion reals in 2024.
Azul is also looking to bolster its fleet of Embraer E195-E2 aircraft during the next couple of years. The Aviation Week Network Fleet Discovery database shows the airline has 11 in operation and 52 on order.
“All the OEMs are late including Embraer, Airbus and others,” Azul CEO John Rodgerson said. “We expect Embraer to fix most of their issues by the end of this year and into next year.”
The airline has a substantial number of E2s coming to replace older-generation aircraft. Rodgerson says the new jets will have 136 seats compared with 118 on the carrier’s E195-E1s, and the E2s have a 25% lower fuel burn per seat. Fleet Discovery shows Azul has 34 E1s in operation, along with six parked, six stored, and one parked in reserve. In addition to the E-Jets, Azul operates Airbus narrowbody and widebody jets, ATR turboprops and Cessna Caravans flown by Azul Conecta.
Despite the second quarter typically being a seasonally weaker period, Azul grew its revenue 8.8% year-over-year to 4.3 billion reals. Its expenses fell 2.9% to 3.7 billion reals. The airline reported an adjusted net loss of 566.8 million reals compared with a loss of 721.4 million reals the year prior.
