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Here's Why Azul is Down Roughly 7% Since Q2 Earnings Release

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Shares of Azul AZUL have declined 6.7% since its second-quarter 2020 earnings release on Aug 13. Below-par second-quarter performance seems to have weighed on investors’ sentiments. The airline industry has inched up 0.4% since Aug 13.


 

Let’s delve into the results.

Azul incurred a loss (excluding $2.33 from non-recurring items) of $2.38 per share in the second quarter, wider than the Zacks Consensus Estimate of a loss of $1.11. In the year-ago period, the company had reported adjusted earnings of 78 cents. The second-quarter results were affected by a coronavirus-induced drop in demand and depreciation of the Brazilian real.
 
Moreover, total revenues of $74.9 million missed the Zacks Consensus Estimate of $103.4 million. The top line also declined more than 80% with passenger revenues (accounted for 70.3% of the top line) plunging 88.6% year over year due to the coronavirus-led weak air-travel demand. Cargo revenues decreased only slightly year over year despite a network-capacity reduction of 83%. Strong e-commerce growth partly offset the negativity from reduced capacity. The company expects cargo revenues to increase in the third quarter from the year-ago period.

Operational Statistics

Consolidated revenue passenger kilometers (“RPK”), measuring revenues generated per kilometer per passenger, fell 85.2% year over year. The metric declined 83.8% and 89.7% on the domestic and international fronts, respectively.

Consolidated available seat kilometers (“ASK”), measuring an airline's passenger-carrying capacity, decreased 82.9% year over year. While domestic capacity dropped 81.8%, international capacity contracted 86.8%.

With traffic declining more than the amount of capacity contraction, consolidated load factor (percentage of seats filled with passengers) deteriorated 1130 basis points to 72.8%.

While total revenues per ASK (“RASK”) decreased 10.3%, passenger revenues per ASK (PRASK) fell 33.6%. Meanwhile, cost per ASK (“CASK”) soared more than 200% on 38% depreciation in the Brazilian real. Jet fuel prices declined 42% year over year. CASK, excluding fuel, augmented more than 300%. Average fare decreased 13.4% from the year-ago quarter’s figure.

Azul exited the second quarter with a total passenger-operating fleet of 138 aircraft. The average age of the fleet was 6 years. Contractual fleet size was 165.

Liquidity

Azul, carrying a Zacks Rank #3 (Hold), exited the second quarter with total liquidity (cash, cash equivalents, short-term and long-term investments plus receivables) of R$3 billion, down 28.6% year over year. Additionally, total debt decreased 5.8% to R$18.9 billion from the March-end figure due to 10.5% reduction in lease liabilities. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Outlook

With passenger demand gradually improving, Azul anticipates travel demand to be 60% of pre-coronavirus levels by the end of this year. As part of a Management Plan implemented to better deal with the coronavirus-related woes, the carrier anticipates its salary expenses to reduce approximately 40% in the second half of 2020 compared to pre-COVID levels, thanks to implementation of voluntary programs and involuntary furloughs. For the remainder of 2020, the airline estimates an average daily cash burn of approximately R$3 million. Capacity is predicted to be approximately 60% of pre-coronavirus levels by the end of December 2020.

Performance of Other Airline Stocks

Delta Air Lines DAL, carrying a Zacks Rank #4 (Sell), incurred a loss (excluding $4.58 from non-recurring items) of $4.43 per share in the June quarter, wider than the Zacks Consensus Estimate of a loss of $3.97. Total revenues in the quarter came in at $1,468 million, surpassing the Zacks Consensus Estimate of $1,400.8 million.

Southwest Airlines Co. LUV, carrying a Zacks Rank #3, incurred a loss of $2.67 per share (excluding $1.04 from non-recurring items) in the second quarter of 2020, wider than the Zacks Consensus Estimate of a loss of $2.53. Meanwhile, operating revenues of $1,008 million beat the Zacks Consensus Estimate of $868.9 million.

Alaska Air Group ALK, carrying a Zacks Rank #4, incurred a loss of $3.54 per share (excluding $1.81 from non-recurring items) in the second quarter of 2020, wider than the Zacks Consensus Estimate of a loss of $3.39. Revenues came in at $421 million, surpassing the Zacks Consensus Estimate of $307.7 million.

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Southwest Airlines Co. (LUV) : Free Stock Analysis Report
 
Delta Air Lines, Inc. (DAL) : Free Stock Analysis Report
 
Alaska Air Group, Inc. (ALK) : Free Stock Analysis Report
 
AZUL SA (AZUL) : Free Stock Analysis Report
 
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