Azul Reports Q3 Earnings and Sustainable Path Towards Full Recovery
São Paulo, November 16, 2020 – Azul S.A., “Azul” (B3:AZUL4, NYSE:AZUL) the best airline in the world according to Tripadvisor, announces today its results for the Third Quarter of 2020 (“3Q20”). The following financial information, unless stated otherwise, is presented in Brazilian reais and in accordance with International Financial Reporting Standards (IFRS).
Financial and Operating Highlights
| § | Azul successfully implemented its Management Plan, providing R$8.4 billion in working capital and cash savings between March 2020 and December 2021, not including variable cost savings from capacity reductions, better than the R$7 billion originally forecasted. |
| § | Immediate liquidity[1] increased to R$2.30 billion, compared to R$2.25 billion at the end of the previous quarter. This does not include the R$1.7 billion of convertible debentures recently raised. |
| § | Total liquidity reached R$6.9 billion, including long-term investments, unencumbered assets, maintenance reserves and deposits. |
| § | Total lease liabilities decreased 7.5% quarter over quarter to R$12.8 billion as a result of contract renegotiations including payment deferrals, discounts and contractual changes. |
| § | Domestic demand recovery in Brazil continues to be one of the fastest in the world. Azul’s September domestic capacity was 49% of the same period last year, while December domestic capacity is expected to reach more than 80%. |
| § | The airline will operate in 113 destinations at the end of 2020, which compares to 116 destinations at the beginning of the year, thus recovering 97% of the network in terms of cities served. |
| § | Azul Cargo Express recorded 40% growth in gross sales compared to the same period last year. In addition, four Embraer E195 E1 passenger aircraft have been converted to dedicated freighters, further increasing the reach and the solutions portfolio of our logistics company. |
| § | Azul’s codeshare agreement with Latam Airlines has been implemented on a total of 151 combined nonstop routes. The codeshare agreement, one of the largest in the world, provides unparalleled connectivity and schedule flexibility in the Brazilian domestic market. |
| § | Operating revenue totaled R$805.3 million, up from R$401.6 million in 2Q20, representing an increase of 100.5% quarter over quarter. |
| § | Operating expenses, excluding non-recurring gains, increased 20.9% quarter over quarter. Compared to 3Q19, operating expenses decreased 40.4%, or R$1.0 billion, driven by lower capacity-related expenses and cost reduction initiatives. |
| § | Operating loss totaled R$ 247.7 million, representing a negative margin of 30.8%. Excluding non-recurring gains, adjusted operating loss totaled R$671.8 million. |
| § | Net loss, excluding exchange rate and unrealized hedges, totaled R$1.2 billion, or R$3.57 cents per preferred share, and US$1.99 cents per ADR. |
1 Includes cash and equivalents, short-term investments and accounts receivables.
Recent Developments
On October 2nd, Azul successfully concluded the sale of its equity participation in TAP as part of the restructuring effort led by the Portuguese government, raising approximately R$70 million in cash.
Since the end of the third quarter, Azul also concluded negotiations with multiple financial partners to extend payment terms on some of its debt, removing R$657 million from short-term debt.
On November 12th, Azul successfully concluded a public offering in Brazil of more than R$1.7 billion of convertible debentures at a 6% yield and 27.5% conversion premium. The Company expects to use the net proceeds of the offering for working capital purposes, expansion of its logistics business, and other strategic opportunities.
COVID-19 Health and Safety
The health and safety of our crewmembers and customers continues to be Azul´s number one priority, and therefore Azul implemented a range of initiatives focused on this. Azul continues to innovate as it confidently welcomes back its customers. The Company’s actions to guarantee safety and sustainability include:
| § | First airline in Brazil to introduce daily temperature checks for all crewmembers and require all customers and crewmembers to wear masks while on board. |
| § | Intensified aircraft cleaning procedures between flights and deep cleaning of all aircraft during overnights |
| § | First airline in Latin America to use Honeywell’s ultraviolet cabin cleaning system. |
| § | All jets fitted with hospital-grade HEPA filters that remove at least 99.9% of all airborne particles, including the novel coronavirus. |
| § | Only airline in the world to implement an innovative boarding process called “Tapete Azul”, or Blue Carpet. This virtual boarding assistant projects a moving walkway in the gate area to provide distancing and increase boarding efficiency. |
| § | First airline in Brazil to offer, without any cost, medical assistance to customers during international trips in case of a positive diagnosis of COVID-19. |
These initiatives have contributed to increase customer confidence and support the strong market recovery in Brazil.
Management Comments
As always, I would like to start by thanking our crewmembers for their efforts during this quarter. As I look back on the remarkable progress we have made since the onset of the pandemic, I could not be more proud of the perseverance and focus of our team. Together, we have successfully implemented our Management Plan, secured our long-term liquidity, accelerated our network recovery and clearly put ourselves in a distinguished position as we emerge from this crisis.
Over the previous six months, Azul was the only airline in the Americas to maintain liquidity without raising cash. We ended September with cash, cash equivalents, short-term investments and accounts receivables of R$2.30 billion, compared to R$2.25 billion at the end of the second quarter. This cash increase was a significant improvement compared to the daily cash burn of R$3 million originally forecasted.
Most recently, we have further improved our liquidity with the successful issuance of more than R$1.7 billion of convertible debentures. Adding the proceeds of this offer to our end-of-quarter cash balance, our cash would be sufficient for more than 5 years at current cash burn levels. This robust liquidity position will secure our business and power our growth as we fully capture the recovering demand. It will also be instrumental in expanding our logistics business and exploring other strategic opportunities.
On the capacity side, we made significant progress during the quarter. The health and safety of our passengers is our number one priority, and this perception by the customers has been contributing to the recovery of domestic demand in Brazil, one of the fastest in the world. We remain true to our network strategy by being the only carrier in 76% of our routes. In addition, our diversified fleet gives us unique flexibility to adequately match capacity with demand. These factors give us confidence in our growth trajectory, and by the end of this year, we expect to operate over 80% of last year’s domestic capacity. In terms of our route network, we will fly to 113 destinations in December, an almost complete recovery when compared to the 116 destinations we served prior to the crisis.
We grew at a record pace when we founded Azul twelve years ago. As we bring back our operations, we are exploring opportunities to rebuild the company in a more efficient way, with less overhead, and take advantage of structural changes in the industry. For example, through the need to preserve aircraft at the peak of the pandemic and then prepare them for the recovery, we accelerated the insourcing of several activities at our Campinas maintenance hangar. Customers have also looked for more self-service options in their travels, enabling us to intensify the use of technology, increasing productivity.
Azul Cargo Express, our logistics business, continued to grow at a strong pace, hitting revenue records every month. During the third quarter, Azul Cargo’s gross sales grew 40% compared to the same period last year. This growth was driven by broad expansion in all segments of the cargo market, but especially in e-commerce. We have completed the conversion of four Embraer E195 E1 passenger aircraft for dedicated logistics operations and see strong market demand for this unique product. Our diversified network, combined with our dedicated assets, gives us a competitive advantage unmatched by any other logistics player in the region.
Looking ahead, we are very confident in our business model, leadership position and competitive advantages. With our Management Plan implemented, we now turn our focus fully to the demand recovery. This crisis has given us the ability to reimagine how Azul functions at every level, and our successful efforts to raise liquidity, rebuild our network and reduce costs have allowed us to become leaner and more efficient than ever.
John Rodgerson, CEO of Azul