AZUL AIR­LINES MAK­ING BRAZIL PROUD

Azul is the fastest grow­ing air­line in Brazil since it com­menced op­er­a­tions in De­cem­ber 2008 and cur­rently has the largest air­line net­work in the coun­try in terms of cities served, with ser­vice to over 100 des­ti­na­tions.

SP's Airbuz - - Civil Airlines - BY R. CHAN­DRAKANTH

BRAZILIAN AVI­A­TION SEC­TOR IS quite vi­brant. On the one hand, air­craft man­u­fac­turer Em­braer has carved out a niche for it­self, while on the other, an air­line Azul has shown what it takes to be a leader in the skies. With a 32 per cent de­par­ture share in the Brazilian avi­a­tion mar­ket, Azul has es­tab­lished it­self as the third largest air­line in the coun­try, after LATAM and Gol. Azul is the fastest grow­ing air­line in Brazil since it com­menced op­er­a­tions in De­cem­ber 2008 and cur­rently has the largest net­work in the coun­try in terms of cities served, with ser­vice to over 100 des­ti­na­tions. It has ex­panded its op­er­a­tions with se­lected non-stop ser­vice to the United States, Europe and South Amer­ica. Azul’s dif­fer­en­ti­ated busi­ness strat­egy, su­pe­rior cus­tomer ex­pe­ri­ence and in­no­va­tive brand­ing are the key driv­ers of con­tin­u­ous growth, as demon­strated by the num­bers in the ta­ble.

Azul Lin­has Aéreas Brasileiras SA (Azul Brazilian Air­lines) or sim­ply Azul, is a low-cost car­rier based in Barueri. The com­pany’s busi­ness model is to stim­u­late de­mand by pro­vid­ing fre­quent and af­ford­able air ser­vice to un­der­served mar­kets through­out Brazil. The com­pany was named Azul (“Blue” in Por­tuguese) after a nam­ing con­test in 2008, where “Samba” was the other pop­u­lar name. It was es­tab­lished on May 5, 2008, by Brazilian-born David Neele­man the founder of Amer­i­can low-cost air­line JetBlue, with a fleet of 76 Em­braer 195 jets. Azul Lin­has Aéreas Brasileiras SA was the fourth air­line launched by JetBlue founder David Neele­man (Mor­ris Air, WestJet, jetBlue, Azul). Azul in­au­gu­rated ser­vices among three cities -- Camp­inas, Sal­vador and Porto Ale­gre. It launched op­er­a­tions with three Em­braer 195 and two Em­braer 190 air­craft. An­other three air­craft were added in Jan­uary 2009 to in­tro­duce non-stop ser­vice from Camp­inas to both Vi­to­ria and Cu­ritiba.

ACQUIRES TRIP. On May 28, 2012, Azul an­nounced the ac­qui­si­tion of TRIP Lin­has Aereas, the largest re­gional car­rier in Brazil. Azul and TRIP started com­pre­hen­sive code-shar­ing op­er­a­tions on De­cem­ber 2, 2012, with all flights car­ry­ing only the IATA code of Azul. On March 6, 2013, Brazilian au­thor­i­ties gave the fi­nal ap­proval for the merger with a few re­stric­tions re­lated to code­shar­ing with TAM Air­lines and slot use at Rio de Janeiro-San­tos Du­mont airport. On May 6, 2014, the merger was com­pleted with the fi­nal ap­proval from Brazilian au­thor­i­ties. That day the brand TRIP ceased to ex­ist and all TRIP as­sets were trans­ferred to Azul.

Azul has signed a code-share agree­ment with Star Al­liance air­line United Air­lines in Jan­uary 2014, which made it pos­si­ble for MileagePlus mem­bers to earn points when fly­ing with Azul be­gin­ning April 1, 2014. Since 2015, Azul is also an equal part­ner in a Brazilian-Por­tuguese joint ven­ture that is the ma­jor­ity owner of TAP Por­tu­gal, an­other Star Al­liance mem­ber. In De­cem­ber 2014, Azul started its first sched­uled in­ter­na­tional flights to Fort Laud­erdale and Or­lando, both in the United States.

In early 2015 it was an­nounced that Azul had signed a pur­chase agree­ment for 35 Air­bus A320­neo air­craft and is to lease an­other 28. In mid-2015, Azul fi­nalised a deal for 30 Em­braer E195-E2 air­craft in­clud­ing 20 op­tions, first an­nounced at the 2014 Farn­bor­ough In­ter­na­tional Air Show. The first de­liv­ery is sched­uled for 2020. On Novem­ber 24, 2015, it was an­nounced that the Chi­nese HNA Group, owner of Hainan Air­lines, would in­vest S$450 mil­lion in Azul, be­com­ing the largest sin­gle share­holder of Azul. This fol­lows the S$100 mil­lion in­vest­ment of United Air­lines closed in June 2015.

As of March 31, 2017, Azul had a to­tal op­er­at­ing fleet of 122 air­craft con­sist­ing of 71 E-jets, 39 ATRs, seven A320­neos, and five A330s with an av­er­age age of 5.0 years. The com­pany’s con­trac­tual fleet, which in­cludes 15 air­craft sub­leased to TAP, to­talled 142 air­craft, of which 37 were un­der fi­nance lease and 105 un­der op­er­at­ing lease. The 20 air­craft not in­cluded in the op­er­at­ing fleet con­sisted of 15 air­craft sub­leased, four E-Jets that were in the process of be­ing trans­ferred to TAP and one ATR.

SERVES MORE THAN 100 DES­TI­NA­TIONS. Azul serves 107 des­ti­na­tions in Brazil, Ar­gentina, Bo­livia, French Guiana, Por­tu­gal, the United States and Uruguay plus some other ad­di­tional lo­ca­tions by means of ded­i­cated ex­ec­u­tive bus ser­vices to the near­est air­ports. Azul has in­ter­line agree­ments with Aero­lin­eas Ar­genti­nas (SkyTeam); Air Europa; Copa Air­lines; Eti­had Air­ways; Hahn Air; Hainan Air­lines and Lufthansa. It has code-share agree­ment with JetBlue Air­ways/ United Air­lines and TAP Por­tu­gal.

THE FLEET STRAT­EGY OF AZUL AIR­LINES IS BASED ON OPTIMISING THE TYPE OF AIR­CRAFT FOR THE DIF­FER­ENT MAR­KETS IT SERVES

Azul also op­er­ates two Pi­la­tus PC-12/45 for lo­gis­tics and main­te­nance sup­port. With such an im­pres­sive fleet in such a short time, Azul has 784 daily de­par­tures serv­ing 107 des­ti­na­tions, cre­at­ing an un­par­alled net­work of 203 non-stop routes as of De­cem­ber 31, 2016. Its con­nec­tiv­ity at large hubs al­lows it to con­sol­i­date traf­fic, serv­ing larger and medium-sized mar­kets as well as smaller cities that do not gen­er­ate suf­fi­cient de­mand for point-to-point ser­vice. “As of De­cem­ber 31, 2016, Azul served 96 des­ti­na­tions within Brazil, com­pared to 52 by Gol and 44 by LATAM. In ad­di­tion, Azul was the sole air­line on 70 per cent of its routes and 34 of the des­ti­na­tions that were served and the lead­ing player in 66 cities as of De­cem­ber 31, 2016. By com­par­i­son, Gol and LATAM were lead­ing car­ri­ers in only 13 and four cities re­spec­tively, as of De­cem­ber 31, 2016. Fur­ther­more, as of De­cem­ber 31, 2016, 22 per cent and 16 per cent of our do­mes­tic net­work over­lapped with that of Gol’s and LATAM’s, re­spec­tively, while Gol’s and LATAM’s net­works had an over­lap of more than 80 per cent be­tween them.

OPTIMISING AIR­CRAFT TO DIF­FER­ENT MAR­KETS. Azul states that its fleet strat­egy is based on optimising the type of air­craft for the dif­fer­ent mar­kets it serves. “Our di­ver­si­fied fleet of ATR, E-Jets and Air­bus air­craft en­ables us to serve mar­kets that we be­lieve our main com­peti­tors, who only fly larger nar­row-body air­craft, can­not serve prof­itably. We be­lieve our cur­rent fleet of air­craft al­lows us to match ca­pac­ity to de­mand, achieve high load fac­tors, pro­vide greater con­ve­nience and fre­quency and serve low and medium den­sity routes and mar­kets in Brazil that are not served by our main com­peti­tors. Ac­cord­ing to ANAC, 67 per cent of the flights in Brazil car­ried fewer than 120 pas­sen­gers in 2015. Our do­mes­tic fleet con­sists of mod­ern Em­braer E-Jets which seat up to 118 pas­sen­gers, fuel-ef­fi­cient ATR air­craft which seat up to 70 pas­sen­gers and next-gen­er­a­tion Air­bus A320­neos which seat up to 174 pas­sen­gers, while all the nar­row-body air­craft used by Gol and LATAM in Brazil have be­tween 144 and 220 seats. As a re­sult, the av­er­age trip cost for

our fleet as of De­cem­ber 31, 2016 was 31 per cent lower than that of larger Boe­ing 737-800 jets flown by Gol. We also op­er­ate Air­bus A330s to serve in­ter­na­tional mar­kets.”

FO­CUSED ON TRIP-COST AD­VAN­TAGE. Azul is fo­cused on main­tain­ing a trip-cost ad­van­tage rel­a­tive to its main com­peti­tors while also pro­vid­ing it with flex­i­bil­ity for growth into new mar­kets both do­mes­ti­cally and in­ter­na­tion­ally. Azul ex­pects to add up to 58 new next-gen­er­a­tion Air­bus 320neos be­tween 2017 and 2023 and 33 next-gen­er­a­tion E-195 E2 air­craft start­ing in 2019 to re­place older gen­er­a­tion air­craft and serve high-den­sity mar­kets. These new gen­er­a­tion air­craft are more fuel-ef­fi­cient than older gen­er­a­tion air­craft. Azul ex­pects that the fleet plan will al­low it to main­tain mar­ket-lead­ing trip-costs and re­duce CASK, both in ab­so­lute terms and rel­a­tive to main com­peti­tors.

Azul in­tends to con­tinue iden­ti­fy­ing, en­ter­ing into and rapidly achiev­ing lead­ing mar­ket pres­ence in new mar­kets or un­der­served mar­kets with high growth po­ten­tial. It also in­tends to con­tinue to grow by ad­ding new des­ti­na­tions to its net­work, fur­ther con­nect­ing cities that are al­ready served with new non-stop ser­vice, in­creas­ing fre­quency in ex­ist­ing mar­kets and us­ing larger air­craft in mar­kets that Azul has de­vel­oped over the years. Fi­nally, Azul in­tends to ap­ply dis­ci­plined ap­proach of se­lect­ing new des­ti­na­tions that can be served by ATR or Em­braer air­craft, with a con­tin­ued fo­cus on Brazilian cities where there is the great­est op­por­tu­nity for prof­itable growth and on se­lect des­ti­na­tions in South Amer­ica with per­ceived high growth po­ten­tial. ATR air­craft pro­vide a sig­nif­i­cant strate­gic ad­van­tage in the abil­ity to en­ter new cities and ac­cess pre­vi­ously un­tapped de­mand, since these air­craft only have 70 seats and, there­fore, re­quire fewer pas­sen­gers for the flight to be­come prof­itable.

ATR 72-600

Em­braer E195-E2

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