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Despite stalled growth in China, Brazil and Russia, a wave of newly middle-class travelers from the BRICs and beyond will start visiting international destinations in the coming decades — dwarfing the numbers we’ve seen thus far.
The extra jets are a conservative way forward that also puts Azul in a good position to capitalize on Olympic-related growth.
Azul, the Brazilian airline created by JetBlue Airways founder David Neeleman, is in talks with Airbus Group NV, Boeing Co. and lessors about wide-body jets to start flying abroad, people familiar with the matter said.
Boeing’s 787-8 Dreamliner is one of the models under review, said two of the people who asked not to be identified because the talks are private. Airbus’s current A330-200 and an upgraded version still on the drawing board are also part of the discussion, the people said.
Acquiring twin-aisle jets would be a shift from Azul’s current focus on using smaller planes on domestic routes. The expansion also would thrust Azul into competition with the two largest airlines serving Brazil, Gol Linhas Aereas Inteligentes SA and Latam Airlines Group SA, as well as U.S. discounters vying for more of the burgeoning inter-American travel market.
Neeleman “may be doing this with an eye to the Olympics” in Rio de Janeiro in 2016, said Robert Mann, an aviation consultant based in Port Washington, New York. “As the low-cost operator, they’ve got great advantages.”
Jacques Rocca, a spokesman for Toulouse, France-based Airbus, declined to comment as did Boeing’s Marc Birtel. Gianfranco Panda Beting, communications and brand director for Azul Linhas Aereas Brasileiras SA, as the carrier is formally known, said the company has “no concrete plans” at this time.
“We are focused on Brazil,” he said yesterday in a telephone interview. “This is a long-term project.”
Azul’s fleet is tailored to Brazil’s domestic market, where the Barueri-based discount carrier currently controls about 17 percent of flying after acquiring Trip last year. Azul currently flies 134 planes, from Embraer SA jets seating as many as 118 people to smaller turboprops, according to its website.
The Dreamliners discussed with Boeing included 787s from early in the production run for the world’s first composite- plastic jetliner, one person said. Those planes, which are known as the “teens” and are heavier than jets assembled later, would be deeply discounted, the person said.
The 787-8, the smallest version of the Dreamliner, seats 242 passengers and has a list price of $211.8 million, according to Boeing’s website. Airbus’s catalog price is $221.7 million for an A330-200, which can carry 246 people.
Azul also is considering narrow-body models such as the Airbus A321neo and Boeing’s 737 Max, along with the planned upgraded version of Embraer’s E190, which wouldn’t be capable of international routes, one of the people said. The carrier is examining the economics of each aircraft type and how it fits into the current business model, that person said.
Neeleman, 54, founded Azul, whose name means “blue” in Portuguese, in 2008, a year after he was ousted by JetBlue Airway’s Corp. board following a service meltdown after an ice storm. New York-based JetBlue began flying in 2000.
Brazil was a natural fit for the aviation entrepreneur, who spent his first five years in the country, is fluent in Portuguese and holds dual citizenship that allowed him to get around a 20 percent cap on foreign ownership of airlines.
Like Southwest Airlines Co., which acquired Neeleman’s Morris Air venture, Azul aims to create a new market of fliers among Brazil’s middle-class with service often based in secondary airports in a market where costs are lower.
Azul’s possible expansion comes after it delayed plans for a public sale of stock last month that would have raised $450 million, citing unfavorable macroeconomic conditions.
With domestic travel slowing amid a weakening of the real, Brazil’s carriers are eyeing international markets for growth, said George Ferguson, a senior analyst with Bloomberg Industries, based in Skillman, New Jersey. “They’re all looking outside the country,” he said.
International routes within the American continents are highly profitable, Ferguson said. Yields on flights to Latin America are the strongest of any region in the world for U.S. carriers, averaging 16.3 percent in the fourth quarter of 2013, according to data compiled by Bloomberg Industries.
Airline deregulation is also opening up big markets like the U.S., Mexico, Argentina and Chile, countries where Azul would enjoy a cost advantage over entrenched competitors, Mann said in a phone interview.
Air travel has soared between the U.S. and Brazil under a 2010 Open Skies treaty that gave U.S. carriers greater access to slot-constrained airports in Sao Paulo and Rio De Janeiro starting in 2011, and will drop all barriers to airline competition between the two countries by late 2015.
Total scheduled service seats, a measure of capacity, rose 29 percent to 4.6 million between the U.S. and Brazil for the first nine months of 2013 from the same period in 2011, according to data compiled by the Bureau of Transportation Statistics.
The U.S. is another natural fit for Azul, especially a south Florida beachhead like Fort Lauderdale, where low-cost carriers JetBlue Airways Corp. and Spirit Airlines Inc. already operate international flights to Latin America, Mann said.
After building a network offering 860 daily flights to 104 cities within Brazil, it’s natural that Neeleman would graduate to larger jets to meet burgeoning demand, Mann said.
“The next step would be to use that feed to enter international service,” Mann said.
With assistance from Christiana Sciaudone in Sao Paulo and Diane Brady in New York.
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