Azul anticipates a roughly 1 billion reais hit from elevated jet fuel costs during the year, equivalent to around $204.15 million at the exchange rate provided, the carrier's finance chief said. The airline estimates fuel accounts for about 30% of its operating costs, and the recent sharp rise in oil prices has pushed fuel expenses higher quickly.
The spike in fuel costs is part of a broader industry shock that followed disruptions to shipping routes through the Strait of Hormuz, a development the aviation sector has described as the most serious since the COVID-19 pandemic. For Azul, this marks an early and significant test of the balance sheet and operating model put in place during its recent restructuring.
Antonio Carlos Garcia, who joined Azul in April from planemaker Embraer as the airline moved out of Chapter 11 protection, said the carrier is in a comparatively stronger position to absorb the hit than some peers because of the changes made during restructuring. Those changes included capacity reductions and a trimming of obligations, moves Garcia said will help limit the ultimate financial pain.
Garcia noted Azul has been cutting capacity as a component of its restructuring program, and he estimated the company could neutralize roughly half of the expected fuel cost increase over the course of the year through a combination of adjusted capacity and ongoing revenue growth. He also pointed to Azul's lighter aircraft delivery commitments as a further mitigating factor.
The airline expects to receive four Embraer E2 jets this year along with seven Airbus widebody aircraft. Garcia said the widebodies should arrive under more favorable pricing arrangements than older twin-aisle contracts.
By contrast, rival LATAM Airlines, which operates a fleet of more than 350 aircraft compared with Azul's fleet of just over 150, estimated a $40 million effect on first-quarter results and more than $700 million in additional fuel expense in the second quarter. Those disclosures underscore the scale of the headwind facing carriers across the region.
Azul emerged from Chapter 11 in February following a broad restructuring that removed about $2.5 billion of obligations and included an investment from United Airlines. The restructuring package also incorporated an investment commitment from American Airlines that is currently undergoing review by Brazil's antitrust authority, CADE.
Garcia said Azul plans to relaunch its American Depositary Receipts program by late May or early June. He described his priorities as enforcing stricter cost discipline and enhancing cash generation, objectives that align with the measures taken during restructuring.
Garcia's appointment to replace the previous finance chief has been met positively by analysts, who cited his role at Embraer in steering the planemaker through the COVID-19 crisis and a failed commercial aviation transaction with Boeing. During his tenure as Embraer's chief financial officer, the company's shares rose more than fourfold, according to the information provided.
Exchange rate used in Azul's disclosure was $1 = 4.8984 reais.