Azul’s road to success in 2021

Azul's road to success in 2021 has come despite the COVID-19 pandemic and net losses in the first three quarters of the year. The airline has gained consolidation as Brazil’s most connected and largest operator, surpassing local competitors LATAM Brazil and GOL Linhas Aereas. Yesterday, the Brazilian carrier Azul Linhas Aereas held its Azul Day 2021. During the presentation, the airline’s CEO, CFO, and CRO (John Rodgerson, Alex Malfitani, and Abhi Shah, respectively), talked about Azul’s highlights during the year. Unparalleled network connectivity Through its main three hubs in Campinas, Belo Horizonte, and Recife, Azul has managed to become Brazil’s most connected carrier. The airline is currently serving 127 domestic destinations and five international destinations. It is the only carrier in 80% of all the routes it operates. Additionally, Azul aims to open 25 new destinations in the next three months. Each hub is designed to do something different, they serve different purposes, and if it weren’t that way, they would only be stealing traffic from each other, said Abhi Shah. One of the secrets to Azul’s success is flying away from Brazil’s triangle, the big three composed of São Paulo (GRU + CGH), Rio de Janeiro (SDU + GIG), and Brasilia (BSB). Instead, Azul operates what can only be described as the most point-to-point map route throughout South America. Azul’s fleet, a success? In order to maintain that level of connectivity, Azul maintains a highly diverse fleet, from Cessnas with up to 12 seats to the largest Airbus A330 with up to 214 seats. It also has ATR and Embraer (both E1 and E2) units. Alex Malfitani explained how the airline is able to sustain such a diverse fleet: “The fleet is complex, of course, but it is a requirement for us to be able to fly all over Brazil the way we fly. A lot of our destinations do not have the demand to sustain themselves even with one flight a day unless you have connectivity. And you can’t have connectivity unless you fly several types of aircraft. The beauty of this is, the bigger the aircraft, the smaller the costs per seat - the economy of scale, but also, the higher the trip-cost. If you have a very big aircraft, it has a very big cost every time it takes off. And if you can’t fill that aircraft, you’re going to lose money; it doesn’t matter that the cost per seat is low if you’re wasting all those seats." [caption id="attachment_60353" align="aligncenter" width="580"] Photo: Azul.[/caption] "So the beauty is flying the right aircraft in the right market, and there are markets in Brazil that can sustain an A320 or even an A321, but there are markets that can only sustain a Cessna. The key to flying a diversified network the way we have is having the right aircraft for the right fleet. If we restricted ourselves to only one single fleet type, it would lead us to do what our competitors do, which is to fly to the Rio-São Paulo-Brasilia triangle.” According to data provided by Cirium, Azul is operating 24,112 flights in December 2021. The E-Jets are by far Azul’s most used aircraft, having 43% of all the flights. Nonetheless, the A320s (with 33% of all the flights) have 44% of all the seats. In this data, we are not taking into account the Cessna fleet. Fleet transformation Another important aspect towards Azul’s road to success in 2021 and beyond is fleet transformation. The airline knows the E1 jet has a cost per seat higher than the E2, A320neo, and A321neo aircraft. Azul is set to become an all-new generation airline by 2026, delaying its plan a couple of years due to the COVID-19 pandemic. Fleet transformation into next-generation aircraft will provide Azul with significant margin expansion going forward. For instance, since introducing the next-gen aircraft in 2016, Azul has reduced passenger feel fuel consumption by 19%. The E1 jets continue to represent the most significant number of Azul flights, so the carrier does have further cost-reduction opportunities by replacing these aircraft. Nonetheless, don’t expect Azul to retire the E1 jets just yet. The airline will send a few of them into the cargo division, announced Abhi Shah, starting with four next year.

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