AZUL Benefits From Surge in Travel Demand Amid Debt Woes
Azul S.A. AZUL is benefiting from a decrease in operating expenses and a surge in air-travel demand. Shares of AZUL have gained 56.4% so far this year, outperforming 12.7% growth of the industry it belongs to.
Image Source: Zacks Investment Research
Azul incurred a loss (excluding $1.52 from non-recurring items) of 81 cents per share in the second quarter of 2023, wider than the Zacks Consensus Estimate of a loss of 70 cents. Loss per share was 94 cents in second-quarter 2022. Total revenues amounted to R$4,269.4 million ($862.7 million). The Zacks Consensus Estimate for revenues was pegged at $908.3 million. Despite this lag, the top line increased 7.8% year over year as air-travel demand has improved.
How is AZUL Doing?
Azul is benefiting from a steady recovery in air-travel demand, especially on the international front. Due to this improvement in international traffic, consolidated traffic and capacity increased 10% and 8.4%, respectively, in second-quarter 2023 from the comparable year-ago period. Azul’s international traffic and capacity surged 93.8% and 95%, respectively, in the June quarter on a year-over-year basis. With more people taking to the skies, Azul’s passenger revenues, contributing 92.5% to the top line, increased 11% year over year (on higher total capacity) in second-quarter 2023.
Further, Azul's fleet-modernization efforts are commendable. In second-quarter 2023, fuel consumption per available seat kilometers (ASK) was down 3.8% from the year-ago period due to AZUL's fleet transformation and fuel-management initiatives, which resulted in lower carbon emissions per ASK. Azul exited the second quarter of 2023 with a total passenger operating fleet of 181 aircraft. The average age of the fleet was 7.3 years. The contractual fleet size was 196.
Declining operating expenses should boost AZUL's bottom line. Total operating expenses fell 2.9% from its year-ago levels in second-quarter 2023. The decrease was due to the 24.5% reduction in fuel price, cost-reduction initiatives and productivity gains. Cost per available seat kilometer also fell 10.5% year over year in the second quarter.
Despite such positives, AZUL's liquidity position remains a concern. Cash and cash equivalent of $130 million at the second quarter of 2023-end was lower than the $1,422 million of long-term debt. This implies that the company does not have enough cash to meet its debt burden.
Zacks Rank and Stocks to Consider
Currently, AZUL carries a Zacks Rank #3 (Hold).
Some better-ranked stocks for investors interested in the Zacks Transportation sector are United Airlines (UAL) and SkyWest, Inc. (SKYW). United Airlines presently sports a Zacks Rank #1 (Strong Buy), while SkyWest currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
United Airlines has an expected earnings growth rate of more than 100% for the current year. UAL delivered a trailing four-quarter earnings surprise of 21.44%, on average.
The Zacks Consensus Estimate for UAL’s current-year earnings has improved 18.9% over the past 90 days. Shares of UAL have soared 34.5% year to date.
SkyWest's fleet-modernization efforts are commendable.A fall in operating expenses is a tailwind for SkyWest. In second-quarter 2023, the metric dipped 2.4% to $693.8 million due to a decline in operating costs. Low operating expenses boost bottom-line results. Shares of SKYW have surged 144.6% year to date.
SKYW delivered a trailing four-quarter earnings surprise of 31.51%, on average.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
United Airlines Holdings Inc (UAL) : Free Stock Analysis Report
SkyWest, Inc. (SKYW) : Free Stock Analysis Report
AZUL (AZUL) : Free Stock Analysis Report
