Bloomberg News

Azul Aims to Expand as Rivals Tam, Gol Scale Back Plan for Fleet

December 12, 2011

Dec. 9 (Bloomberg) -- Azul Linhas Aereas Brasileiras, Brazil’s third-biggest domestic carrier, said it plans to expand its fleet next year and bid for a stake in an airport, while bigger rivals Tam SA and Gol Linhas Aereas Inteligentes SA scale back their plans to increase capacity.

Azul aims for a net gain of 14 planes and bid for a 1 percent stake in the Viracopos Airport in Campinas, Brazil, where its hub is located, said founder David Neeleman, who also founded JetBlue Airways Corp. The stake is the maximum that airlines are allowed to own in airports. Tam, Brazil’s biggest airline by market share, and Gol, the second largest, have said they aren’t interested in bidding in auctions for stakes.

“We really want that 1 percent of Viracopos,” Neeleman said yesterday at Bloomberg’s Sao Paulo office. “It’d be in the controller’s interest to have us as a partner because Viracopos without Azul is a whole different asset.”

While Gol and Tam fly many of the same routes as each other, Azul focuses on little-used airports, which gives it more room to expand, he said. Azul has increased its market share to about 10 percent since it started up three years ago. Gol and Tam said last month they plan to cut back their capacity expansion in 2012 in an effort to boost profit margins.

‘Tariff War’

“Tam and Gol have very low load factors, they fly the same routes, there was this ridiculous tariff war between them, so they have to fill up their planes more to be profitable,” Neeleman said. “Our load factor is always above 80 percent. Our yield is higher. If you match a higher yield and a better load factor as we do, there’s a big difference.”

Yields are the average fare per mile, a measure of profitability for airlines, while load factor is the average percentage of booked seats of an airline.

Azul will receive eight Embraer SA jets in 2012 and 14 ATR-600 propeller planes, eight of which will replace older ATR-200 models, Neeleman said. Azul’s fleet will reach 63 aircraft at the end of next year.

Neeleman, who owns 80 percent of Azul, said there is no rush to hold an initial public offering because the airline has a strong cash position.

“We always talk about it, they always ask me when will the IPO happen, but there is no big rush,” said Neeleman, who raised $200 million to create Azul in December 2008 after leaving JetBlue the previous May. “We don’t need the money.”

--Editors: Jessica Brice, Jeffrey Tannenbaum

To contact the reporter on this story: Jose Sergio Osse in Sao Paulo at josse1@bloomberg.net

To contact the editor responsible for this story: Helder Marinho at hmarinho@bloomberg.net


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