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Neeleman Expects Profit as Brazil’s Azul Air Flies 70% Full
April 21 (Bloomberg) -- Azul Linhas Aereas Brasileiras, the startup Brazilian airline founded by David Neeleman, said it’s filling more seats than the country’s biggest carriers and expects to be making monthly profits by year’s end.
Paying passengers filled more than 70 percent of available seats this month, up from 67 percent in March, said Neeleman, who is chief executive officer and previously started JetBlue Airways Group Inc. He said in February that Sao Paulo-based Azul would break even at an average load factor of about 60 percent.
March results for closely held Azul topped the performance of Tam SA, Brazil’s largest airline, and No. 2 Gol Linhas Aereas Inteligentes SA. Tam’s domestic load factor was 59 percent, while Gol’s was 57 percent, according to the carriers’ monthly reports. Azul, which flies only within Brazil, will meet a goal of profit on a monthly basis in 2009 even as the economy worsens, Neeleman said.
“People can afford to fly,” Neeleman, 49, said yesterday in an interview in New York. “They just have not been in the habit of doing it because fares have been so high in the past and service hasn’t existed.”
Azul, which started operating in mid-December, should post a full-year profit in 2010, Neeleman said. The company would consider selling shares to the public once markets stabilize and profits are sustained, he said.
IPO
An initial public offering is possible “someday, not now,” Neeleman said. “The markets are so depressed now. Once we get profitable and we can tell a story of profitability and growth.”
Latin America’s largest economy will shrink 0.49 percent this year, the biggest contraction in 19 years, as companies curtail output and fire workers, a central bank survey of about 100 economists published yesterday showed. Brazil’s benchmark Bovespa stock index, while up 18 percent this year, is down 32 percent over the past 12 months.
Azul flies nine jets built by Sao Jose dos Campos, Brazil-based Empresa Brasileira de Aeronautica SA and will end 2009 with 14.
Like JetBlue, Azul is a discount carrier, helping drive down fares in its markets, Neeleman said. A round-trip ticket between Sao Paulo and Salvador fell to as little as 150 reais ($66.71) from 350 reais, Neeleman said.
Neeleman said Azul isn’t taking market share from Tam or Gol, which are based in Sao Paulo and control about 93 percent of domestic travel, because it focuses on cities without air service. It operates chiefly from Campinas’s Viracopos airport, 99 kilometers (62 miles) from Sao Paulo.
Regional Focus
“One big difference is the strategy to concentrate on Campinas,” said David Beckerman, vice president of airline- data firm OAG Aviation Solutions in Washington. “It is going to show whether or not using an alternate airport is going to work.”
As U.S. airlines add service to northeastern Brazilian cities such as Recife and Salvador, demand for domestic air connections will grow, too, Beckerman said in a telephone interview.
“These cities are going to need additional links between them,” he said.
Northeastern Brazil and Sao Paulo state will be pivotal for Azul, said Neeleman, a Brazil native who holds dual U.S.- Brazil citizenship. The carrier is offering free bus service between the Campinas airport and Sao Paulo, as well as to smaller cities such as Piracicaba, Americana and Sorocaba.
“The interior of Sao Paulo is huge for us,” Neeleman said.
Growing Market
Neeleman created Azul in March 2008, entering an aviation market that the National Civil Aviation Agency says grew 15 percent annually from 2004 through 2007 and 12 percent last year, as rising income and declining unemployment encouraged Brazilians to travel more.
His Brazilian venture extends a career of airline startups such as JetBlue, the New York-based carrier he founded in 1998 with $130 million from investors including Soros Private Equity Partners. Earlier, he founded Canada’s low-fare WestJet Airlines Ltd. and was president of Morris Air Corp., which was acquired by Southwest Airlines Co., from 1988 to 1994.
JetBlue’s board replaced him in 2007 after two straight annual losses and an operations meltdown after an ice storm in the northeast U.S. that cost the airline $41 million and stranded thousands of passengers.
Neeleman’s tenure at JetBlue also included the purchase of Embraer regional jets, making the U.S. carrier the first to purchase the 100-seat model. JetBlue said in September it would lease as many as six of the planes to Azul.
“When we started Azul we took all the latest systems that JetBlue was migrated to and put them in from day one,” Neeleman said. “We’ve learned with that experience.”
To contact the reporter on this story: Fabiola Moura in New York at fdemoura@bloomberg.net
Last Updated: April 21, 2009 00:00 EDT
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