Brazilian Bounceback: After managing its way through tough times, Azul’s prospects are brightening

Now a publicly traded company, Azul has a lot to say. And many stakeholders like what they’re hearing.

As Brazilian airlines awake from their national nightmare, financial results are improving sharply—much more, in fact, than the improvement in the nation’s economy. That’s certainly true for Azul, which turned heads with an impressive 6% operating margin from April through June, typically the slowest season of the year for South America’s airlines. This followed a strong 11% margin in the peak first quarter, convincing management its full-year figure will be between 9% and 11%.

That would signify a great turnaround story. Azul was a money-losing company in 2015, a year in which plummeting fuel prices led to unusually strong profits for many of the world’s airlines. Not in Latin America though, and certainly not in Brazil, which suffered the worst recession of any major country in the world. The economy shrank nearly 4% in 2015 and then another 4% in 2016, according to the IMF, pummeled by the commodity bust and made worse by pervasive corruption scandals at the highest levels of government and business. Airline passenger traffic within Brazil, measured by RPKs, grew a healthy 6% on the eve of the crisis in 2014, only to slow to 1% growth in 2015. Last year, traffic shrank 6%. Taking things back a little further, Brazil (like many countries) was walloped by the global economic meltdown at the end of last decade. But it bounced back vigorously in 2010, only to slow again in 2012, as a prelude to the crisis that loomed.

No Brazilian airline was immune. Gol, for example, came close to bankruptcy last year. LATAM, like Gol, began slashing capacity, cutting its Brazilian domestic ASKs 12% last year. Azul too, which shrank its fleet in 2015 and its ASKs in 2016, saw its operating results turn red in 2015.

By 2016, though, Azul was back in the black, and not just barely so—it earned a solid 5% operating margin. Unfortunately, problems still festered below the operating line, with financial expenses alone wiping out all gains from operations. Gol faced a similar predicament, actually outperforming Azul with a 2016 operating margin of nearly 7%, an oddly strong result for a carrier struggling to stay solvent. Loans denominated in U.S. dollars plagued both airlines…

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