Azul reports $700 million loss in second quarter 2024

Brazilian airline Azul posted a net loss of $703.6 million in the second quarter of 2024, amid a weakening exchange rate from Brazilian real to US dollar, along with declining capacity and growing fuel costs. Overall operating expenses increased 1.5% to $678.9 million. The company's fuel expenses increased 2.6% to $249.8 million in the quarter. Salaries and benefits expenses were up 11.6% - largely driven by a 5.5% union increase in salaries after collective bargaining agreements along with its 3% increase in capacity overall. Azul's international capacity was down 8% during the period, though domestic capacity was up 6.5%. Load factor was up 0.4 percentage point to 80.3%. Its domestic load factor was up 0.2 percentage point to 78.5%, while international load factor was up 2.3 percentage points to 87.6%. In addition, revenues had shown a marginal decline across both its passenger and cargo streams - slightly down overall by 2.3% to $759 million. The company said this was driven by the impact of the Rio Grande do Sul floods on its operations and the temporary reduction in its international capacity. Azul read in a statement: ""Without these impacts, we estimate that our top-line revenues would have been above [the second quarter of 2023]"". Azul CEO John Rodgerson said: "" Porto Alegre airport was forced to close, with a partial reopening expected for October. Rio Grande do Sul is the fourth largest state in the country in terms of economic activity and represents over 10% of our total capacity. We estimate that the operational reduction in that region negatively impacted our 2Q24 results by at least [$36.5 million]."" The company reported an operating result of $80.3 million, down 25.5% compared to last year's second quarter. Its operating margin was down 3.3 percentage points to 10.6%. It recorded a 9% drop in its EBITDA down to $191.4 million, with an EBITDA margin of 25.2% - down 1.9 percentage point since the second quarter of 2023. At the end of the second quarter, Azul held a total liquidity of $1.17bn. As of June 30, 2024, its immediate liquidity was $455.29 million after it paid $273.17 million in debt amortization and leases in the period. In a statement, it said: ""Immediate liquidity was 23.7% higher than 2Q23, as a result of the capital optimization plan implemented last year. In that plan, we also created additional cash-raising capacity secured by Azul Cargo, which remains available for us to raise first-out debt as we continually evaluate opportunities to manage our debt maturity profile and liquidity position."" The company's net debt at the end of the quarter was $4.48bn, up from $3.8bn at the end of the previous quarter. Its net debt to EBITDA ratio was 4.5x, compared to 3.7x in the preceding quarter. As of June 30, 2024, Azul had a passenger contractual fleet of 183 aircraft remaining the same as the previous quarter. One of the aircraft includes one E1 jet subleased to Breeze. 163 of those aircraft were under operating leases, compared to 157 in the preceding quarter. Azul also updated its full year outlook. It anticipates an overall capacity increase of around 7%, compared to 2023. Its previous guidance estimated an 11% increase. The reduction in capacity outlook was driven by the flooding impact and the temporary international capacity reduction in the first half of the year. In addition, it said the delay from OEMs in new aircraft deliveries had driven the revised capacity outlook. Its EBITDA is forecast to be above 6bn Brazilian reals ($1.09bn), having previously set an outlook of approximately 6.5bn Brazilian reals ($1.19bn). With the updated EBITDA as well as the currency exchange weakening, Azul expects a leverage of around 4.2x at the end of 2024. Its previous outlook suggested a leverage of 3.0x. The company said ""booking trends in the third quarter have been very encouraging"". It had also saw ""an acceleration in corporate demand"" which has led to an uplift in fare revenues and anticipates this to follow through to the second half of the year.