Brazilian stocks have rebounded in recent months alongside
the Brazilian real, which has climbed away from the multi-year lows garnered
into September, after Jair Bolsonaro, a far-right candidate, became the
front-runner in and eventually won Brazil’s presidential election. Amid a tense
election cycle complicated by charges of corruption, the barring of the popular candidacy
of an imprisoned former president on court order, and violence in both rhetoric
and act, Bolsonaro ran on calls for a smaller state government, lowered taxes,
and the privatization of state companies to reduce corruption, as well as on other
various conservative and populist social positions, especially regarding crime,
and on backing away from certain environmental protections. A dominant theme engaged
by Bolsonaro and his party in Brazil, as well as in other South American
elections, is the message that voting left will lead a country to become like Venezuela.
Whether that's fair or not, the message seems to have been persuasive to a
large number of the country’s electorate.
One way to play the resultant optimism for an improved Brazil economy is through Azul (AZUL 27.75, +0.28, +1.02%), which is the largest airline in Brazil, offering 766 daily flights to 110 destinations. With an operating fleet of 120 aircraft, the company has a network of 218 non-stop routes. Azul is a fairly recent IPO as it made its IPO debut in April 2017.
Azul focuses more intently on the low-cost side of the market. Azul was founded in 2008 by entrepreneur CEO David Neeleman, founder of JetBlue (JBLU), as his fourth successful airline venture, to capture the market opportunities created by the expansion of the Brazilian aviation market. As the sole airline serving some 70% of its routes, Azul is the leading airline in 66 Brazilian cities, and it derives a strong majority of its revenue from domestic traffic. The airline also flies to select international destinations, including Fort Lauderdale, Orlando, and Lisbon. It recently announced non-stop flights from Sao Paulo to Paris, which started in July 2018 via a codeshare agreement with French carrier Aigle Azur.
Azul is serving a growing market in Brazil. Consider the following: Brazil is geographically similar in size to the continental U.S. and is currently the fourth largest market for domestic airline passengers in the world. Since 2008, the number of domestic airline passengers carried in Brazil has increased by more than 90% to 96 mln in 2015.
Brazil's air travel market continues to be significantly underpenetrated and is expected to increase to 131 mln domestic passengers by 2021. Azul has the most extensive route network in Brazil, serving 96 domestic destinations, about twice as many as its main competitors GOL Linhas (GOL) and LATAM Airlines (LFL), which serve 52 and 44 destinations, respectively. Also, Azul is the only carrier in 37 of its domestic destinations.
Finally, Azul operates a young, fuel-efficient fleet that is better tailored for the Brazilian market than those of its main competitors as it allows Azul to serve cities with different demographics, ranging from large capitals to smaller cities. After some ups and downs since its IPO, the stock has been ramping nicely higher in recent months.
An overall improving economy would obviously be good for Azul. If consumers have more to spend, they are more likely to purchase airline tickets. In a recent interview, President Trump said he can see a trade deal happening with Brazil following the election of Jair Bolsonaro. If you're seeking for a way to play what could be a Brazilian economic recovery in 2019, Azul is worth a look.
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