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AZUL Benefits From Air-Travel Demand Despite Rising Expenses
Azul S.A. (AZUL - Free Report) has been seeing a steady rebound in the air-travel demand, particularly in its domestic markets. Mainly owing to this improvement in domestic demand, consolidated traffic and capacity increased 63.8% and 59.6%, respectively, in the second quarter of 2022 from the comparable year-ago period levels.
Azul’s domestic traffic and capacity increased 50% and 51.6% in the June quarter on a year-over-year basis. The company’s international traffic and capacity surged more than 100% in the June quarter on a year-over-year basis.
With more people taking to the skies, Azul’s passenger revenues, contributing 90.7% to the top line, surged 151% year over year (on higher total capacity) in second-quarter 2022. The surge was driven by a 59.6% higher total capacity.
The robust growth in e-commerce is boosting revenues at Azul’s cargo business unit. With e-commerce growth continuing in second-quarter 2022, cargo and other revenues rose 28.6% year over year, primarily owing to upbeat demand for Azul’s logistics solutions.
However, the company’s total operating expenses surged 80.2% in second-quarter 2022 from its year-ago levels. Majorly, aircraft fuel rose 178.7% in this segment. Such escalating operating expenses might hurt the bottom-line results.
Some other companies from the same space facing higher fuel costs include Southwest Airlines Co. (LUV - Free Report) and Spirit Airlines, Inc. (SAVE - Free Report) . The current scenario of rising fuel costs does not bode well for the airline and is hurting its bottom line.
In second-quarter 2022, Southwest Airlines witnessed fuel cost per gallon (inclusive of fuel tax: economic) of $3.36, which surged 75% year over year.
For Spirit Airlines, the average fuel cost per gallon in the June quarter surged 120% year over year to $4.30. The fuel price per gallon is anticipated in the range of $3.55-$3.60 in the third quarter of 2022. The mid-point of the guided range is much higher than the $1.95 reported in third-quarter 2021.