Brazil airline Azul hikes 2024 earnings forecast on 'robust' demand

Brazilian carrier Azul AZUL on Thursday bumped up its estimate for core earnings in 2024 as air travel demand in Latin America's largest economy remains at robust levels, helping Azul despite capacity bottlenecks in the industry.

Azul said it expects earnings before interest, taxes, depreciation and amortization (EBITDA) of around 6.5 billion reais this year, representing nearly 25% growth over 2023 and above the 6.3 billion reais previously projected.

The upward revision, the company said in a securities filing, reflects strong demand, improving fuel prices, expected growth in capacity and a greater number of fuel-efficient aircraft entering its fleet.

For the fourth quarter of 2023, the airline reported 74.5% growth in net profit to 403.3 million reais, while net revenue rose 13% to 5.03 billion reais, topping the estimate of analysts polled by LSEG of 4.93 billion.

Sao Paulo-traded shares of Azul slipped some 5% after the report, making the stock the biggest decliner on Brazil's Bovespa stock index IBOV, but sell-side analysts welcomed the results.

"Azul reported decent results," JPMorgan analysts said in a note to clients, adding that the company offers "significant asymmetry to the upside" even after an upcoming equity dilution related to a deal with lessors.

Azul wrapped up restructuring obligations last year with lessors and equipment manufacturers in a bid to boost its capital structure and cash flow, giving equity and tradable debt in exchange for lower payments.

Goldman Sachs analysts said they see upside risks to Azul's guidance for 2024 on lower jet fuel prices and healthy market dynamics, with limited capacity additions from competitors.

Airlines have been struggling to increase capacity to meet growing demand amid delayed deliveries by planemakers and engine maintenance pressures.

Azul, which holds a near 30% market share in Brazil, expects to add 11 to 13 Embraer E2 EMBR3 aircraft to its fleet in 2024, most of them late in the year, and has also been adding some Airbus AIR widebodies to its fleet.

"That's very positive news," Chief Executive John Rodgerson told reporters. "We intend to strengthen growth in hubs such as Recife, Confins, Belem. We are serving around 160 cities in Brazil and expect to add some 10 more cities this year."

Chief Financial Officer Alex Malfitani said he sees Embraer better positioned than peers to deliver aircraft on time at the moment.

Earlier on Thursday, Azul's troubled local competitor Gol GOLL3, which is under bankruptcy protection in the United States, posted a fourth-quarter net loss of 1.09 billion reais.

($1 = 4.9932 reais)