The Brazilian airline Azul saw an adjusted net income of (Brazilian Real)$238million in the second quarter of 2018, despite what CEO John Rodgerson called a “very challenging second quarter”.
The net income, adjusted for non-recurring items was up R$277 million year over year, compared to a net loss of R$38.6 million in the same quarter last year.
Commenting on the results Rodgerson said: “The combination of high fuel prices, the weakening of the real, and the impact of the nationwide truckers’ strike made for a very challenging second quarter.
“Nonetheless we delivered a record second quarter net income excluding special items of R$238.3 million and are confident that the fundamentals of our margin expansion strategy are working as expected.”
Azul said a truckers strike in May disrupted the distribution of fuel supplies throughout the country, affecting flights and passengers’ ability to commute to and from airports for a period of approximately 10 days. About 37 airports operated by Azul ran out of fuel and some airports remained closed for three days.
The airline reported the total operational impact of the truckers’ strike on Azul amounted to R$57 million, and of this R$51.2 million represents a loss of revenue.
Rodgerson continued: “Our operating revenue adjusted for the lost revenue from the truckers’ strike was R$2.1 billion, an increase of 20.5% over the same period last year, mostly driven by a healthy demand environment, robust ancillary revenues, and an increase of 18.6% in capacity.”
Adjusted operating income (profit) was R$75.8 million, yielding a margin of 3.7% compared with R$98.8 million and a margin of 5.8% in 2Q17, which Rodgerson said as mostly due to a 12.2% devaluation of the Brazilian real combined with a 20.2% increase in fuel prices.
The airline saw passenger traffic (RPK) increase 17.4% over a capacity increase of 18.6%, resulting in a load factor of 80.1%, 0.8 percentage points lower than in 2Q17.
Rodgerson summarised his comments saying: “We continue to demonstrate significant revenue growth across all parts of our business while at the same time transforming our fleet to deliver lower unit costs. The pillars of our margin expansion plan are working well and, as a result, I could not be more confident that we are well on our way to building a better Company with sustainable long-term competitive advantages.”
As part of Azul’s fleet transformation, at the end of the second quarter the airline had 15 A320neos, representing 24% of total capacity. The airline expects to end the year with 20 A320neos, representing 27% of total ASKs in 2018.
The airline also signed a Letter of Intent (LoI) in July to acquire 21 Embraer 195-E2 aircraft, increasing its total firm order of E2s to 51. The new aircraft will be configured with 136 seat, 15% more than the current version with deliveries to start in 2019.
Combined with “the significant fuel burn improvement” of the aircraft the airline expects to operate the E2s at 26% lower cost per seat and 14% lower cost per trip than the current generation Embraer jets operated by the airline.
Looking to the rest of 2018, the airline said: “We feel confident about the revenue environment looking forward, however, based on the current fuel and currency trends we believe it is prudent to revise our capacity growth. Therefore, our capacity growth guidance for 2018 is expected to be from 16% to 18%, down from 17% to 20%.”
Written by: Kimberley Young
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