Brazilian stocks should be worth a watch in 2019; these
stocks have generally or collectively rebounded in recent months following the
election of Jair Bolsonaro as president. After being inaugurated yesterday, he
is now in charge, and it will be interesting to see what changes he brings in.
Bolsonaro ran on a platform calling for smaller state government, lowered taxes, and the privatization of state companies in the interest of reducing corruption, as well as on other various conservative and populist social positions.
One concern following his inauguration is that he may go overboard trying to make too many changes too quickly, which could have a detrimental effect. His strong affinity for the military also raises concerns that military force or police brutality could rise in order to combat the high crime rate. However, the Brazilian people have decided to try his methods.
One way to play the hope for an improved Brazilian economy is Azul (AZUL 28.13, +0.44, +1.59%), 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 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, Lisbon, and Porto. In July 2018, it launched non-stop flights from Sao Paulo to Paris 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. Between 2008 and 2015, the number of domestic airline passengers carried
in Brazil increased by more than 90% to 96 mln.
Brazil's air travel market continues to be significantly under-penetrated and is expected to increase to 131 mln domestic passengers by 2021. Azul has the most extensive route network in Brazil. In October, Azul announced intentions to add flights to the city of Bagé to its network, marking the 101st domestic destination served. In size, then Azul’s domestic network serves about twice as many ports as each of its main competitors, GOL Linhas (GOL) and LATAM Airlines (LFL). 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 company’s stock has been continuing to ramp 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. If you're looking for a way to play what could be a Brazilian economic recovery in 2019, Azul is worth a look. Of course, there are lots of other Brazilian stocks as well, and if you prefer a Brazilian ETF over a stock, you can buy the iShares Brazil ETF (EWZ 40.31, +2.11, +5.52%), which today moves notably higher in accordance with a strong day for the majority of names listed from Brazil.