While the world is focused on the Rio Olympics and Brazil's economic and political woes, Azul is quietly gaining ground from the back of the pack. The finish line, though, is still out of sight.
Airline tycoon David Neeleman is seeing signs of a turnaround in his two main markets after months of struggle, with a massive recession in Brazil and a management shakeup in his European foothold.
Neeleman, the founder and chief executive officer of Brazilian carrier Azul Linhas Aereas Brasileiras SA, said a measure of pricing power known as revenue per available seat-kilometer jumped to a record in July. That’s a sign of improvement after a streak of 11 months of contraction in Brazil air travel and a cut in capacity that led Azul to get rid of as many as 34 planes.
With more than three decades of experience running airlines, Neeleman has seen his share of the industry’s ups and downs. He helped start Morris Air, Canada’s WestJet Airlines Ltd. and JetBlue Airways Corp. before turning to the Brazilian market in 2008. Azul soared along with Brazil’s economy in the go-go years but has had to muddle through a painful economic downturn.
Even with demand still far below pre-recession levels, the recent strengthening of the Brazilian currency combined with $40 prices for barrels of oil will help Azul improve its results in the near term, according to the 56-year-old executive. With unemployment beginning to level out and sentiment about economic prospects improving, Azul has stopped cutting aircraft and will marginally increase capacity as it gets newer, larger planes delivered in the next 18 months, the CEO said.
The same optimism applies to TAP, which he says could turn a profit this year as the company adjusts to changes in management enacted since he bought a stake in 2015.
“Now we are back in the black, we are feeling good about things,’’ Neeleman said in an interview at Bloomberg’s headquarters in New York. “Planes are full, average fares are up.”
TAP’s loss widened to 99 million euros ($110 million) in 2015 from 46 million euros the previous year. Last month, China’s Hainan Airlines Co. which owns a 24 percent stake of Azul, bought 30 million euros of TAP convertible bonds from Azul, earning the right to appoint one board member in the Portuguese carrier, the Chinese airline said in a filing.
“TAP will probably make a profit this year because of the extremely low fuel prices,” said George Ferguson, an analyst at Bloomberg Intelligence. “The decision to sell a stake in TAP to Hainan Airlines will help him recover some of his investment. He will probably help TAP turn around and probably make some money on this deal.”
Having a stake in the Portuguese airline proved a good strategy for Neeleman when Brazil’s economy started turning sour. At the same time he was cutting planes from the fleet in Latin America, TAP needed them to renew some of its aircraft, which were on average 27 years old.
“There is good upside at TAP,” he said. “When Brazil hit the skids, things were tough for TAP because they had a big percentage of their revenue coming from Brazil. We said why don’t we add some service to the U.S.?”
TAP subsequently began flying to Newark, Miami, New York and Boston, and expects to expand “significantly” in the U.S. beyond those cities, the CEO said.
Last year, the Atlantic Gateway group — which includes Neeleman and Portuguese bus tycoon Humberto Pedrosa — proposed to pay 10 million euros for 61 percent of TAP and inject at least 338 million euros into the debt-laden airline. Soon after he was appointed in November, Prime Minister Antonio Costa said Portugal planned to retake control, with or without the agreement of the new owners. The shareholders came to an understanding in February, splitting ownership.
Neeleman said he is communicating well with his partners in TAP, including the government, to advance the company’s turnaround efforts with the help of low fuel costs.
Portugal’s Planning and Infrastructure Minister Pedro Marques declined to comment on TAP’s financial results. HNA and Hainan Air spokesmen weren’t immediately available for comment.
“Based on the projections that fuel is going to be below $50 a barrel for the next couple of years, it will give us an opportunity to do some of the stuff we need to do to make the company more efficient,” Neeleman said.
–With assistance from Henrique Almeida Rafael Mendes and Benny Kung To contact the reporters on this story: Fabiola Moura in Sao Paulo at firstname.lastname@example.org, Julia Leite in Sao Paulo at email@example.com. To contact the editors responsible for this story: Crayton Harrison at firstname.lastname@example.org, Lena Lee, Brendan Case
©2016 Bloomberg L.P.
This article was written by Fabiola Moura and Julia Leite from Bloomberg and was legally licensed through the NewsCred publisher network.
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Photo Credit: Brazil's Azul notched record revenue per available seat kilometer, a key metric, in July 2016. Pictured is one of its A320 neo aircraft. Airbus
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