Brazil’s Azul Prepares IPO

Azul, Brazil’s third-largest and most innovative airline, is planning a simultaneous listing in its home country and the United States in order to finance new aircraft and network expansion.

The listing, rumoured to be in July, could command about R$1bn ($486m) and in doing so would revitalise a Brazilian IPO market that raised less money last year than in any of the previous seven.

Azul is the creation of David Neeleman, the Brazilian-American who founded Jetblue in the US and who has taken Azul’s share of the Brazilian market to 17 per cent in just five years.

About a third of that is accounted for by Trip, the regional carrier that Azul bought last year, but most of Azul’s success is down to the focused nature of its core operation.

Unlike its bigger competitors – Tam and Gol – Azul eschews Airbus and Boeing narrowbodies in favour of 100-plus-seat Embraers, a smart choice in a region where a majority of mainline flights take off with loads more appropriate to regional aircraft (according to Embraer, at least).

Gol, which operates 737s, only managed to push its load factor to an unimpressive 69 per cent last quarter despite deep capacity cuts.

Tam’s capacity management has been more successful, winning the airline a 10 point rise in load factor, but that is still behind Azul’s 81 per cent.

The last six months have also seen solid gains in Azul’s domestic market share, which – excluding Trip – has risen from under 10 per cent to 12.5 per cent.

Yet all of Brazil’s carriers face a common challenge in a domestic market where growth has been slowing for some time. The domestic market grew seven per cent last year – a modest amount for a rapidly developing economy – a figure unlikely to be improved upon in 2013.

Next year will see hordes of football fans descend on Brazil for the 2014 World Cup, which should provide a welcome fillip for local airlines, provided, of course, that the country’s aviation infrastructure is ready to meet them.

Brazil’s gateway to the world – Sao Paulo Guarulhos – is among the world’s worst airports for delays and its problems are reflected in other hubs around the country.

The airport’s new owners have promised to sort the airport out before fans arrive next summer, but even if they don’t, Azul should stay one step ahead as it operates out of the uncongested Viracopos Airport (VCP) at Campinas, a city near Sao Paulo.

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