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However, escalated fuel costs, a primary headwind, are limiting the bottom-line growth.
Factors Favoring Azul
The gradual improvement in air-travel demand is a huge boon for AZUL. Owing to this tailwind, the company reported healthy traffic data for January. Azul’s consolidated traffic increased 21.3% year over year.
To match the increased demand situation, AZUL is expanding its capacity. In the same period, capacity grew 23.5% year over year. Since traffic growth was less than capacity expansion, the load factor (percentage of seats filled by passengers) fell 1.5 percentage points to 82.3% last month.
The surge in international traffic (up 137.3% year over year) led to a rosy scenario with respect to consolidated traffic. On the domestic front, traffic and capacity increased 6.5% and 10.2%, respectively.
Moreover, Azul’s efforts to modernize its fleet bode well. The rise in airfares is also likely to bolster AZUL’s top line.
Key Risks
Escalating fuel costs pose a threat to AZUL’s bottom line. Oil price is moving north, primarily because of supply concerns stemming from Russia's invasion of Ukraine.
In the September quarter of 2022, the average fuel cost per liter surged 85.3% from the third-quarter 2021 actuals. Fuel price is likely to be high in the December quarter as well.
A low current ratio (a measure of liquidity) also does not bode well as far as Azul’s liquidity is concerned. In the September quarter, AZUL’s current ratio of 0.35 was lower than the June reading of 0.42. A current ratio of less than 1 implies that a company doesn't have enough liquid assets to cover its short-term liabilities.
Stocks to Consider
Investors interested in the Zacks Airline industry may also consider the following stocks:
Alaska Air Group (ALK - Free Report) , currently holding a Zacks Rank of 2 (Buy), is being aided by the improved air travel demand situation. In the fourth quarter of 2022, ALK reported better-than-expected results.
The company expects a 23-29% increase in the top line during first-quarter 2023. ALK has been increasing its capacity to meet the upbeat demand. Capacity is expected to increase 11-14% in the first quarter of 2023
The Zacks Consensus Estimate for earnings has been revised upward by 22.22% in the past 60 days.
United Airlines (UAL - Free Report) , currently carrying a Zacks Rank #2, is seeing steady recovery in domestic and leisure air-travel demand. Driven by upbeat air-travel demand, UAL was profitable in fourth-quarter 2022, which was the third consecutive profitable quarter at UAL.
Driven by solid demand, management expects total revenue per available seat mile to grow almost 25% year over year in the first quarter of 2023. Total revenues are anticipated to grow almost 50% year over year.
The Zacks Consensus Estimate for first-quarter earnings per share has been revised upward by 227.5% in the past 60 days.
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AZUL Benefits From Buoyant Air Traffic Amid Cost Challenges
Azul (AZUL - Free Report) is benefiting from buoyant air-travel demand (particularly on the leisure front). The company is carrying a Zacks Rank #3 (Hold), currently. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
However, escalated fuel costs, a primary headwind, are limiting the bottom-line growth.
Factors Favoring Azul
The gradual improvement in air-travel demand is a huge boon for AZUL. Owing to this tailwind, the company reported healthy traffic data for January. Azul’s consolidated traffic increased 21.3% year over year.
To match the increased demand situation, AZUL is expanding its capacity. In the same period, capacity grew 23.5% year over year. Since traffic growth was less than capacity expansion, the load factor (percentage of seats filled by passengers) fell 1.5 percentage points to 82.3% last month.
The surge in international traffic (up 137.3% year over year) led to a rosy scenario with respect to consolidated traffic. On the domestic front, traffic and capacity increased 6.5% and 10.2%, respectively.
Moreover, Azul’s efforts to modernize its fleet bode well. The rise in airfares is also likely to bolster AZUL’s top line.
Key Risks
Escalating fuel costs pose a threat to AZUL’s bottom line. Oil price is moving north, primarily because of supply concerns stemming from Russia's invasion of Ukraine.
In the September quarter of 2022, the average fuel cost per liter surged 85.3% from the third-quarter 2021 actuals. Fuel price is likely to be high in the December quarter as well.
A low current ratio (a measure of liquidity) also does not bode well as far as Azul’s liquidity is concerned. In the September quarter, AZUL’s current ratio of 0.35 was lower than the June reading of 0.42. A current ratio of less than 1 implies that a company doesn't have enough liquid assets to cover its short-term liabilities.
Stocks to Consider
Investors interested in the Zacks Airline industry may also consider the following stocks:
Alaska Air Group (ALK - Free Report) , currently holding a Zacks Rank of 2 (Buy), is being aided by the improved air travel demand situation. In the fourth quarter of 2022, ALK reported better-than-expected results.
The company expects a 23-29% increase in the top line during first-quarter 2023. ALK has been increasing its capacity to meet the upbeat demand. Capacity is expected to increase 11-14% in the first quarter of 2023
The Zacks Consensus Estimate for earnings has been revised upward by 22.22% in the past 60 days.
United Airlines (UAL - Free Report) , currently carrying a Zacks Rank #2, is seeing steady recovery in domestic and leisure air-travel demand. Driven by upbeat air-travel demand, UAL was profitable in fourth-quarter 2022, which was the third consecutive profitable quarter at UAL.
Driven by solid demand, management expects total revenue per available seat mile to grow almost 25% year over year in the first quarter of 2023. Total revenues are anticipated to grow almost 50% year over year.
The Zacks Consensus Estimate for first-quarter earnings per share has been revised upward by 227.5% in the past 60 days.