Azul S.A. (AZUL - Free Report) posted mixed traffic numbers for December 2018. In spite of traffic increasing on the back of strong demand for air travel, load factor declined as traffic growth was outweighed by capacity expansion.
Consolidated traffic (measured in revenue passenger kilometers or RPKs) improved 13.4% year over year to 2.3 billion on 16.2% rise on the international front and 12.4% growth on the domestic front. On a year-over-year basis, consolidated capacity (or available seat kilometers/ASKs) expanded 13.5% to 2.8 billion, owing to 15.4% growth in international capacity and 12.9% rise in domestic capacity.
However, consolidated load factor (percentage of seats filled by passengers) contracted 0.1 percentage points (pp) to 83%. Domestically, load factor slipped to 81.3% from 81.7% in the year-ago period. Nevertheless, load factor on the international front expanded to 88% from 87.4% in the prior-ago period.
At the end of 2018, RPK was up 16.4% and ASK grew 16 %. Also, load factor inched up 0.2 pp to 82.3% on a year-over-year basis.
In spite of the increase in December traffic, we note that Azul has its own share of challenges. The current downtrend in oil prices, notwithstanding, the bottom line continues to be hurt due to costs related to aircraft fuel. Depreciation in the Brazilian currency is also a major headwind. For 2018, Azul projects an increase in costs of R$800 million and R$900 million for currency fluctuation and fuel price, respectively. In fact, these concerns have compelled the company to trim guidance for current-year operating margin. Operating margin is anticipated to be 9% compared with the previous guidance of 9-11%.
Zacks Rank & Other Stocks to Consider
Azul currently sports a Zacks Rank #1 (Strong Buy).
Investors interested in the broader Transportation Sector may consider Spirit Airlines, Inc. (SAVE - Free Report) , Allegiant Travel Company (ALGT - Free Report) and Fly Leasing Limited (FLY - Free Report) , each sporting a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Shares of Spirit Airlines have surged 52.3% in the past six months. Meanwhile, Allegiant and Fly Leasing boast an impressive earnings history. Allegiant outpaced the Zacks Consensus Estimate in three of the trailing four quarters, the average beat being 18.7%. Fly Leasing outpaced the Zacks Consensus Estimate in three of the trailing four quarters, the average being 13.5%.
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