With expensive tickets, airlines increase earnings – 03/11/2023 – Market

The main Brazilian airlines had a week of good news, such as increased revenues, renegotiation of debts and high share prices. However, liabilities remain high, which is still worrying analysts. For passengers, there is no forecast for a drop in ticket prices.

The balance sheets for the fourth quarter of 2022 were released in recent days. Azul, for example, earned BRL 4.4 billion in the period, which generated an Ebtida profit (before amortization, taxes and other factors) of BRL 1.097 billion. However, when including fees and debt payments, the company had an adjusted net loss of BRL 610 million, 40% higher than in the fourth quarter of 2021.

At Gol, revenue was BRL 4.72 billion, the highest in the company’s history, Ebitda profit of BRL 1.17 billion and net profit of BRL 230 million. In the last quarter of 2021, the net loss had been BRL 2.8 billion.

At Latam, revenue was US$ 2.74 billion, Ebitda profit of US$ 139 million and net profit of US$ 2.5 billion. In the same period of 2021, the company had lost about US$ 2.7 billion.

The value of Latam’s net profit was distorted because the company left a judicial recovery process in November, due to debt reclassifications that occurred in the period.

The three companies have billionaire debts, which are being rolled over. It is common for airlines to take out large loans to buy or lease aircraft, very expensive equipment, paid off over the years. During the pandemic, however, the suspension of flights caused companies to lose a lot of cash. With no money, it became more difficult to honor commitments, which had to be renegotiated.

Among the three companies, the one that carried out the biggest restructuring was Latam, which underwent judicial recovery in the US, which began in May 2020. At the end of the process, the company’s debt was reduced by 38%, from US$ 10.4 billion to $6.5 billion.

This week, Azul announced a renegotiation with aircraft lessors, a category that holds 80% of its gross debt. Under the agreement, part of the amounts owed will be exchanged for company shares, and part will be refinanced at lower rates.

At Gol, in addition to the net profit, the market also welcomed the announcement of a contribution of US$ 451 million made by Abra, a holding company created from the merger of the Brazilian company with the Colombian Avianca. The two companies are now part of the same group, but will maintain separate brands and operations.

The numbers excited investors. Azul’s shares almost doubled in price in one week: they were quoted at US$ 4.19 on Friday (3), and closed at US$ 7.27 on Friday (10). With Gol, the increase was smaller, but still significant: they went from R$ 5.13 on Friday (3) to R$ 7.13 seven days later. As for Latam, they were practically stable, going from US$ 0.40 to US$ 0.43 in one week.

However, analysts point out that companies are still in a delicate situation. “Azul’s shares had a strong increase in the week, but are at a very low value compared to the historical series”, evaluates José Eduardo Daronco, an analyst at Suno Research. At the end of March 2022, Azul’s shares were at the level of US$ 15.

“Companies managed to throw the pandemic debts forward, but the ‘forward’ has arrived, in a scenario of higher costs. And corporate demand has not yet fully recovered”, he assesses.

André Castellini, civil aviation analyst at Bain&Company, points out that Azul’s debt securities were being traded at 30% or 40% of face value, in a sign of the market’s lack of confidence. “Renegotiations and investments give oxygen, bring liquidity to companies and remove the risk of bankruptcy in the short term”, he assesses.

However, the means to roll over the debts and extend the term included paying higher fees. “Airline companies come out of this process with expensive debt and a product, air tickets, more expensive. But companies are operating close to break-even [ponto de equilíbrio] cash, and with a more expensive product, which normally makes the market shrink”, says Castellini.

The analyst also assesses that a possible drop in ticket prices should only occur if the real gains strength against the dollar. As around 70% of airline expenses are quoted in American currency, the exchange rate has a great impact on tickets.

Air tickets in Brazil are up 43.57% in the last 12 months, according to IPCA data. General inflation in the period was 5.6%.

Companies attribute the increase to the increase in the price of kerosene, the main operating cost. Fuel had a strong rise in 2022, but the current price is 18.2% lower than a year ago, on the global average, according to data from the IATA (International Air Transport Association).

“I think all airlines want to regain the profitability they’ve lost over the last few years. The consumer is willing to pay the prices that are there. We don’t see a drop in demand and, in fact, we think demand is stronger than ever.” , said Abhi Shah, president of Azul, in a conference with investors.

“We hope that as fuel continues to fall, fares will also follow, but there is no forecast [de queda nas passagens]says Jerome Cadier, president of Latam, in an interview with journalists.

For 2023, expectations are for new highs in demand and numbers. Azul expects to obtain a record revenue of R$ 20 billion in the year. At the end of March, the company will have more flights from Congonhas airport, one of the main airports in Brazil for corporate travel.

Gol expects to have an Ebtida margin of 24% this year, and has reduced its investment projection in 2023, from R$700 million to R$600 million. “We expect that the recovery of the corporate market in the fourth quarter will continue to intensify in 2023. Despite the higher cost of living, Brazilians want to travel”, said Gol, in a statement announcing the results.

Latam expects a 20% increase in the volume of passengers and cargo and reach an EBITDA of around US$ 2 billion. “The group continues directing efforts to further reduce costs and increase capacity, maintaining a strong focus on profitability and cash generation,” the company said in a statement.

Data from the beginning of 2023, also released in recent days, show that demand is still heated. Azul had a 25.9% increase in passenger volume in February, compared to the same month of 2022. At Gol, the increase was 22% in the same comparison. And in Latam, in January of this year, the increase was 24.9%.