Brazil's Azul Marks Full Corporate Travel Recovery

The recovery of lucrative corporate travelers has, in many parts of the world, stalled. From Europe to North America, many airlines report that numbers are only back in the 60-80% range from pre-pandemic levels.

Not so much in Brazil. Azul Chief Revenue Officer Abhi Shah said Tuesday that both corporate travel revenues and volumes had fully recovered in August. That makes it one of the first airlines in the world to report such a feat.

"Brazil has benefited from geography and sort of the culture in the market of coming back in person much quicker than anywhere else," he said at an investor event.

Neither of Azul's main competitors, Gol and Latam Airlines, have reported full corporate travel recoveries amid overwhelmingly strong travel demand in Brazil. In July, Gol CEO Celso Ferrer said its business travel volumes were only roughly 75% recovered. Revenues from the segment have largely recovered, both in Brazil and elsewhere, on higher overall airfares.

Average fares at Azul stood at 550 Brazilian reals ($110) in the second quarter, or 45% higher than during the same period in 2019, company data show. Unit revenues, measured in revenue per available seat kilometer (RASK), were up 26% while unit costs, or CASK, excluding fuel were up just 18%.

As significant as Azul's corporate travel feat is to the larger recovery, it is, for now, unique. The country is South America's largest, both by population and economy. Its transportation infrastructure is dominated by roads — and particularly buses — and airlines covering its vast distances. It has almost no intercity passenger rail.

Airlines in Europe and North America have broadly reported a flattening of the corporate travel recovery. Business traveler volumes were back to roughly 60% of 2019 levels at the Lufthansa Group in August, while they were at 70-80% of four-years-ago at Delta Air Lines in July. And, in countries like France and Germany with robust rail markets, airline executives have warned that domestic corporate travel may never return.

“In the U.S., we’re in a business recession," United Airlines CEO Scott Kirby said in June.

Azul did have some help in recovering corporate travelers. It has more than doubled in size at São Paulo's close-in Congonhas airport since January with new flights acquired through a slot redistribution scheme. The airport, popular with Brazil's roadwarriors for its proximity to São Paulo's business district, has brought new corporate travelers to Azul.

The airline, however, remains a distant third in terms of flights at Congonhas. Latam has a 41% share of departures, Gol 39%, and Azul 16%, according to Cirium Diio schedules.

The full corporate travel recovery coupled with strong leisure demand creates a strong backdrop for Azul as it heads into its strongest quarters. Southern Hemisphere travel typically peaks in the first and fourth quarters of the year, or the northern winter.

"We're very encouraged by the trends that we are seeing," Shah said on the outlook.

Azul executives were also confident in the success of its debt restructuring. After reports that it had engaged restructuring advisors early in the year, the airline successfully renegotiated its debt and lease payments outside of court. Azul reduced aircraft lease liabilities by nearly a third to 9.2 billion Brazilian reals by converting some of those commitments to long-tenor debt, and pushed out major debt repayments until 2028. And some of the new debt issued to lessors can convert to equity in the airline.

"We're very excited, and we're not going anywhere," CEO John Rodgerson said. "We're going to continue to grow this business."