Hong Kong’s aviation industry has paid the price for the recent social unrest in the region. Hong Kong Airport recorded…
First Quarter Results Show Positive Demand Recovery for Brazil’s Major Carriers
The commercial aviation market in Brazil has had an intense first quarter this year. As the new government takes office, the markets are waiting anxiously for the promised economic reforms, reflecting in more investments and thus, accelerating demand.
Most important, though, is the collapse of Avianca Brasil, which was the fourth biggest domestic carrier until its downfall. The airline mostly served markets which already had competition, positively affecting the demand for the competitors, which can now raise ticket prices as options for passengers are reduced.
Though the overall market outlook may seem good, international demand has suffered slightly and the Brazilian real has strongly depreciated. According to Gol, the Brazilian real suffered a 16.2 percent depreciation in the first quarter which, allied to overcapacity on international routes, has made the airlines worry. Such effects can be perceived in the results presentations that Brazil’s largest airlines – Gol, LATAM Brasil and Azul – have released this month.
Gol, the biggest domestic carrier, has not yet recovered from the losses it has been registering since the financial crisis hit Brazil in 2014. The airline registered a BRL32.3 million (USD $8,281,235) loss in the first quarter compared to the BRL142.3 million (USD $36,483,585) profits it registered in the same period last year. Nevertheless, the overall numbers can be seen as positive as the Revenue Passengers per Kilometer (RPK) has risen 6.4 perfect, as well as a 1.9 percent increase in yields.
Considering their exposure to the international markets and thus dollar costs/sales have risen significantly with the new flights to the United States, costs have also grown – more than the revenues. The Cost per Available Seat per Kilometer (CASK) has grown 4.7 percent, while the Revenue per Available Seat per Kilometer (RASK) grew only 3.2 percent in relation to the first quarter of 2018.
One major concern of Gol over the first quarter was the suspension of Boeing 737 MAX flights. The airline’s seven MAX aircraft could operate efficiently from their hubs in Brasília and Fortaleza to Miami and Orlando. Since the grounding of this model, however, they now have to operate with the less efficient Boeing 737 NG, often leading to fuel stops in a third country.
In the investors conference Gol’s CEO, Paulo Kakinoff, said that he believes the MAX should be flying again by June. The airline CFO, Richard Lark, said this unforeseen event made the airline postpone the devolution of four 737NGs, as well as postpone the planned maintenance of four others. If the grounding takes longer, he said, “we would have to take other steps as short-term NGs bookings [leasings] to comply to our fleet plan,” since in June the airline expects demand to start increasing more.
The second largest Brazilian domestic and largest international carrier, LATAM has suffered a little bit more with the depreciation of the Brazilian real, as a major part of its network is composed of international operations. The domestic ASK in Brazil has grown 1.5 percent from the first quarter 2018 to first quarter 2019, while the RPK has grown 1.3 percent.
Though LATAM doesn’t report country-by-country financial results, we can infer that the domestic results have been good with the bankruptcy of Avianca Brasil. LATAM has revised the expected domestic ASKs growth in 2019 from 2-4 percent to 5-7 percent. Meanwhile, international results have been poor as the airline canceled operations from São Paulo to Rome, as well as the planned São Paulo-Munich route, citing “overcapacity” in the international market.
Finally, Azul, the third major carrier in Brazil, is experiencing good financial results, though not as strong as in the first quarter of last year. They are constantly receiving new Airbus A320neos, which strongly boost the ASK while having lower costs than first-generation Embraer 190/195s. This, allied to the exclusive regional markets in which the airline operates feeding its major routes, gives Azul the ability to have higher yields than its competitors.
From the first quarter of 2018 to the first quarter of 2019, Azul’s ASK has grown 16.0 percent, while the RPK has grown 15.6 percent. The Brazilian real depreciation also played a role in the results as the yield has fallen 0.3 percent, while the RASK didn’t change from one year to the other. The airline’s profits fell 20.1 percent, from BRL172.3 millions in the first quarter of 2018 to BRL137.7 millions in the first quarter of 2019.
The expectations for Azul is to keep benefiting from the arrival of more A320neos, as well as the arrival of its first Embraer 195 E2 which are set to come from September.
“We should have 6 of them by the end of the year,” told David Neeleman, Azul’s founder and chairman.
Even though international demand may seem to struggle, the overall aviation market in Brazil is showing some recovery signals and the financial results and forecasts of the airlines in the mid-term clearly show that. It will all depend on the current government macroeconomic reforms for the Brazilian real to appreciate and for this positive trend to keep going.
Latest posts by João Machado (see all)
- Embraer Studies Turboprop Development With Boeing - January 20, 2020
- Azul Bumps E195-E2 Order to 75, Announces Flights to New York/JFK - January 19, 2020
- LATAM to Start Offering Premium Economy on all Narrowbody Flights - January 16, 2020
This week has been hectic for Azul in Brazil. Days after announcing it reached an agreement to acquire regional carrier…
The U.K. government’s decision this week to defer a reported £100m ($130m) in Air Passenger Duty (APD) payments from Europe’s…