Shares of Azul (AZUL - Free Report) have declined 6.7% since its second-quarter 2020 earnings release on Aug 13. Below-par second-quarter performance seems to have weighed on investors’ sentiments. The airline industry has inched up 0.4% since Aug 13.
Let’s delve into the results.
Azul incurred a loss (excluding $2.33 from non-recurring items) of $2.38 per share in the second quarter, wider than the Zacks Consensus Estimate of a loss of $1.11. In the year-ago period, the company had reported adjusted earnings of 78 cents. The second-quarter results were affected by a coronavirus-induced drop in demand and depreciation of the Brazilian real.
Moreover, total revenues of $74.9 million missed the Zacks Consensus Estimate of $103.4 million. The top line also declined more than 80% with passenger revenues (accounted for 70.3% of the top line) plunging 88.6% year over year due to the coronavirus-led weak air-travel demand. Cargo revenues decreased only slightly year over year despite a network-capacity reduction of 83%. Strong e-commerce growth partly offset the negativity from reduced capacity. The company expects cargo revenues to increase in the third quarter from the year-ago period.
Operational Statistics
Consolidated revenue passenger kilometers (“RPK”), measuring revenues generated per kilometer per passenger, fell 85.2% year over year. The metric declined 83.8% and 89.7% on the domestic and international fronts, respectively.
Consolidated available seat kilometers (“ASK”), measuring an airline's passenger-carrying capacity, decreased 82.9% year over year. While domestic capacity dropped 81.8%, international capacity contracted 86.8%.
With traffic declining more than the amount of capacity contraction, consolidated load factor (percentage of seats filled with passengers) deteriorated 1130 basis points to 72.8%.
While total revenues per ASK (“RASK”) decreased 10.3%, passenger revenues per ASK (PRASK) fell 33.6%. Meanwhile, cost per ASK (“CASK”) soared more than 200% on 38% depreciation in the Brazilian real. Jet fuel prices declined 42% year over year. CASK, excluding fuel, augmented more than 300%. Average fare decreased 13.4% from the year-ago quarter’s figure.
Azul exited the second quarter with a total passenger-operating fleet of 138 aircraft. The average age of the fleet was 6 years. Contractual fleet size was 165.
Liquidity
Azul, carrying a Zacks Rank #3 (Hold), exited the second quarter with total liquidity (cash, cash equivalents, short-term and long-term investments plus receivables) of R$3 billion, down 28.6% year over year. Additionally, total debt decreased 5.8% to R$18.9 billion from the March-end figure due to 10.5% reduction in lease liabilities. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Outlook
With passenger demand gradually improving, Azul anticipates travel demand to be 60% of pre-coronavirus levels by the end of this year. As part of a Management Plan implemented to better deal with the coronavirus-related woes, the carrier anticipates its salary expenses to reduce approximately 40% in the second half of 2020 compared to pre-COVID levels, thanks to implementation of voluntary programs and involuntary furloughs. For the remainder of 2020, the airline estimates an average daily cash burn of approximately R$3 million. Capacity is predicted to be approximately 60% of pre-coronavirus levels by the end of December 2020.
Performance of Other Airline Stocks
Delta Air Lines (DAL - Free Report) , carrying a Zacks Rank #4 (Sell), incurred a loss (excluding $4.58 from non-recurring items) of $4.43 per share in the June quarter, wider than the Zacks Consensus Estimate of a loss of $3.97. Total revenues in the quarter came in at $1,468 million, surpassing the Zacks Consensus Estimate of $1,400.8 million.
Southwest Airlines Co. (LUV - Free Report) , carrying a Zacks Rank #3, incurred a loss of $2.67 per share (excluding $1.04 from non-recurring items) in the second quarter of 2020, wider than the Zacks Consensus Estimate of a loss of $2.53. Meanwhile, operating revenues of $1,008 million beat the Zacks Consensus Estimate of $868.9 million.
Alaska Air Group (ALK - Free Report) , carrying a Zacks Rank #4, incurred a loss of $3.54 per share (excluding $1.81 from non-recurring items) in the second quarter of 2020, wider than the Zacks Consensus Estimate of a loss of $3.39. Revenues came in at $421 million, surpassing the Zacks Consensus Estimate of $307.7 million.
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Shares of Azul (AZUL - Free Report) have declined 6.7% since its second-quarter 2020 earnings release on Aug 13. Below-par second-quarter performance seems to have weighed on investors’ sentiments. The airline industry has inched up 0.4% since Aug 13.
Let’s delve into the results.
Azul incurred a loss (excluding $2.33 from non-recurring items) of $2.38 per share in the second quarter, wider than the Zacks Consensus Estimate of a loss of $1.11. In the year-ago period, the company had reported adjusted earnings of 78 cents. The second-quarter results were affected by a coronavirus-induced drop in demand and depreciation of the Brazilian real.
Moreover, total revenues of $74.9 million missed the Zacks Consensus Estimate of $103.4 million. The top line also declined more than 80% with passenger revenues (accounted for 70.3% of the top line) plunging 88.6% year over year due to the coronavirus-led weak air-travel demand. Cargo revenues decreased only slightly year over year despite a network-capacity reduction of 83%. Strong e-commerce growth partly offset the negativity from reduced capacity. The company expects cargo revenues to increase in the third quarter from the year-ago period.
Operational Statistics
Consolidated revenue passenger kilometers (“RPK”), measuring revenues generated per kilometer per passenger, fell 85.2% year over year. The metric declined 83.8% and 89.7% on the domestic and international fronts, respectively.
Consolidated available seat kilometers (“ASK”), measuring an airline's passenger-carrying capacity, decreased 82.9% year over year. While domestic capacity dropped 81.8%, international capacity contracted 86.8%.
With traffic declining more than the amount of capacity contraction, consolidated load factor (percentage of seats filled with passengers) deteriorated 1130 basis points to 72.8%.
While total revenues per ASK (“RASK”) decreased 10.3%, passenger revenues per ASK (PRASK) fell 33.6%. Meanwhile, cost per ASK (“CASK”) soared more than 200% on 38% depreciation in the Brazilian real. Jet fuel prices declined 42% year over year. CASK, excluding fuel, augmented more than 300%. Average fare decreased 13.4% from the year-ago quarter’s figure.
Azul exited the second quarter with a total passenger-operating fleet of 138 aircraft. The average age of the fleet was 6 years. Contractual fleet size was 165.
Liquidity
Azul, carrying a Zacks Rank #3 (Hold), exited the second quarter with total liquidity (cash, cash equivalents, short-term and long-term investments plus receivables) of R$3 billion, down 28.6% year over year. Additionally, total debt decreased 5.8% to R$18.9 billion from the March-end figure due to 10.5% reduction in lease liabilities. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Outlook
With passenger demand gradually improving, Azul anticipates travel demand to be 60% of pre-coronavirus levels by the end of this year. As part of a Management Plan implemented to better deal with the coronavirus-related woes, the carrier anticipates its salary expenses to reduce approximately 40% in the second half of 2020 compared to pre-COVID levels, thanks to implementation of voluntary programs and involuntary furloughs. For the remainder of 2020, the airline estimates an average daily cash burn of approximately R$3 million. Capacity is predicted to be approximately 60% of pre-coronavirus levels by the end of December 2020.
Performance of Other Airline Stocks
Delta Air Lines (DAL - Free Report) , carrying a Zacks Rank #4 (Sell), incurred a loss (excluding $4.58 from non-recurring items) of $4.43 per share in the June quarter, wider than the Zacks Consensus Estimate of a loss of $3.97. Total revenues in the quarter came in at $1,468 million, surpassing the Zacks Consensus Estimate of $1,400.8 million.
Southwest Airlines Co. (LUV - Free Report) , carrying a Zacks Rank #3, incurred a loss of $2.67 per share (excluding $1.04 from non-recurring items) in the second quarter of 2020, wider than the Zacks Consensus Estimate of a loss of $2.53. Meanwhile, operating revenues of $1,008 million beat the Zacks Consensus Estimate of $868.9 million.
Alaska Air Group (ALK - Free Report) , carrying a Zacks Rank #4, incurred a loss of $3.54 per share (excluding $1.81 from non-recurring items) in the second quarter of 2020, wider than the Zacks Consensus Estimate of a loss of $3.39. Revenues came in at $421 million, surpassing the Zacks Consensus Estimate of $307.7 million.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>
Zacks Names "Single Best Pick to Double"
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time.
This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.
Free: See Our Top Stock and 4 Runners Up >>
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