Release Date: August 12, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Azul SA (AZUL, Financial) reported strong revenue of BRL4.2 billion for the second quarter, with a RASK of 0.32.
- The company achieved an EBITDA of BRL1.1 billion and an EBIT of BRL441 million, representing margins of 25.2% and 10.6%, respectively.
- Azul's loyalty program, Azul Fidelity, delivered strong results with record numbers in members, gross billings, and active credit card sales.
- Azul Viagens, the company's vacation packaging business, grew 63% in gross bookings compared to the second quarter of 2023.
- The logistics business saw a 12% growth quarter-over-quarter, contributing to the overall revenue increase.
Negative Points
- The severe flooding in Rio Grande do Sul negatively impacted the company's second-quarter results by at least BRL200 million.
- The rapid devaluation of the Brazilian real by 12% and a 2.4% increase in fuel prices posed significant challenges.
- The closure of the main airport in Porto Alegre led to a substantial reduction in capacity and forward bookings.
- Azul faced temporary reductions in its international network due to delays in aircraft deliveries, impacting bookings and flown unit revenue.
- The company had to rapidly reallocate capacity from Porto Alegre to other cities, resulting in lower-quality revenue.
Q & A Highlights
Q: Can you provide an update on the debt conversion terms and how you plan to handle the 3 million shares expected to vest by the lessors?
A: We are in bilateral conversations with our lessors to negotiate new terms. Lessors are long-term partners who need a thriving business, and we are confident in reaching a construct that works for both parties. We have not issued shares yet and will update you as we finalize terms. (Alexandre Malfitani, CFO)
Q: What is the latest update on your fleet plan for this year and the next, considering the supply chain issues?
A: We have received the A320s planned for this year. For widebodies, we expect two more A330s in September and the final two between December and January. We are working closely with Embraer for E2 deliveries, which are moving around slightly but should total 15 to 18 by the end of next year. (Abhi Shah, Chief Revenue Officer)
Q: How did the flooding impact your second-quarter results, and what should we expect until operations normalize?
A: The BRL200 million impact was net of redirected capacity. The rapid redeployment of capacity led to lower-quality revenue. We expect normalized RASK by 3Q and positive year-over-year RASK. Operating at Porto Alegre will benefit us as economic activity in the city rebuilds. (Abhi Shah, Chief Revenue Officer)
Q: Are there any A320 deliveries planned for next year, and how does the BNDES financing look?
A: No A320 deliveries are planned for next year; they have been pushed to 2026 and beyond. The focus will be on E2s. The BNDES financing is standard ECA financing available to Embraer customers, and we have approval for up to 10 aircraft. Most E2 deliveries will be operating leases, with no additional cash outflows expected. (Abhi Shah, Chief Revenue Officer and Alexandre Malfitani, CFO)
Q: Can you confirm if the fare increases are sufficient to meet your current guidance, or are additional increases needed?
A: The current fare levels are good, and maintaining them through the second half of the year is key. Strong seasonality and economic indicators support maintaining these levels. We expect positive unit revenues if the industry maintains discipline. (Abhi Shah, Chief Revenue Officer)
Q: What is the potential impact of the Elevate plan on your 2024 and 2025 results?
A: Elevate helps us achieve over BRL6 billion of EBITDA in 2024, despite challenges. The plan includes structural changes that will be permanent, contributing an incremental BRL1 billion of EBITDA in 2025. (John Rodgerson, CEO and Alexandre Malfitani, CFO)
Q: How will the growth in international traffic impact domestic demand, given your hub-and-spoke model?
A: The increase in international traffic will help domestic demand by making more seats available. The return of international flights will unblock domestic demand, especially in regions like Recife and Belo Horizonte. (Abhi Shah, Chief Revenue Officer)
Q: What is the status of your negotiations with Embraer?
A: We are in active discussions with Embraer and expect to provide updates in the near future. (John Rodgerson, CEO)
Q: How do you plan to manage liquidity given the cash needs in the next two years?
A: Liquidity management involves bilateral negotiations with partners. We have access to various sources of capital, including the GE line and unencumbered cargo business. The core business remains strong, and we are confident in maintaining necessary liquidity. (Alexandre Malfitani, CFO and John Rodgerson, CEO)
Q: What is your outlook for 2025 growth given the current macro environment?
A: The focus will be on E2 deliveries and reducing E1 utilization. Despite macro challenges, we expect strong growth supported by economic indicators like decreasing unemployment and increasing GDP. (Abhi Shah, Chief Revenue Officer and David Neeleman, Chairman)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
