Azul S.A. (Azul) provides air transportation services. Azul carries out its activities through its subsidiaries, mainly Azul Linhas Aéreas Brasileiras S.A. (ALAB) and Azul Conecta Ltda. (Conecta), which hold authorization from government authorities to operate as airlines and ATS Viagens e Turismo Ltda (Azul Viagens).
The company, in terms of departures and cities served, with around 975 daily departures to 167 destinations, creating an unparalleled network of more than 400 non-stop routes as o...
Azul S.A. (Azul) provides air transportation services. Azul carries out its activities through its subsidiaries, mainly Azul Linhas Aéreas Brasileiras S.A. (ALAB) and Azul Conecta Ltda. (Conecta), which hold authorization from government authorities to operate as airlines and ATS Viagens e Turismo Ltda (Azul Viagens).
The company, in terms of departures and cities served, with around 975 daily departures to 167 destinations, creating an unparalleled network of more than 400 non-stop routes as of December 31, 2023. As the sole airline on 74% of its routes, the company operates in 140 Brazilian cities in terms of departures and carried approximately 28 million passengers in the year ended December 31, 2023. In addition to having an extensive network, optimized fleet, and a high- quality product, it also has strategic revenue generating business units, including its wholly-owned loyalty program TudoAzul, and its logistics solutions business Azul Cargo.
The company provides scheduled service to 85 of its domestic destinations and hold the leading position in 7 out of the 10 largest domestic airports in which it operate in terms of departures. Through its network, it connects travelers to destinations exclusively served by it from three hubs, which cater to the São Paulo, Belo Horizonte, and Recife markets, all among the largest metropolitan areas in the country. Notably, the company is the airline at Viracopos airport, one of the principal airports in the São Paulo area and the largest domestic hub in South America in terms of non-stop destinations served, with a 96% share of its 150 domestic daily departures as of December 31, 2023.
The company’s service features include advanced seat assignment, leather seats, individual entertainment screens with free live television at every seat in all of its Embraer jets and most of its A320neos, extensive legroom with a pitch of 30 inches or more, complimentary beverage, and snack services, and free bus service to key airports it serves. In addition, the company offers Wi-Fi service in some of its A320neo, A321neo, E2 fleet and are installing it in additional aircraft. As a result of strong focus on customer service, its NPS (Net Promoter Score) average in 2023 totaled 54.9.
The company continues to invest in and expand its loyalty program TudoAzul, which had more than 16 million members as of December 31, 2023. TudoAzul has been the fastest growing loyalty program in terms of members in Brazil for the past eight years compared to Smiles and LATAM Pass, the loyalty programs of Gol and LATAM respectively, according to publicly available information of such competitors, including disclosure filed with or furnished to the SEC and information available on their respective websites. In the fourth quarter of 2020, the company launched the Azul Itaucard Infinite, the co-branded credit card in the Itaucard portfolio. Given its network strength and the expected growth of passenger air travel, credit card penetration and usage and customer loyalty in Brazil, TudoAzul is a key strategic asset for the company.
Strategy
The company intends to continue adding next-generation, more fuel-efficient aircraft to its fleet replacing older generation aircraft. The company also intends to continue to grow by adding new destinations to its network, further connecting the cities that it already serve with new non-stop service, increasing frequency in existing markets, and using larger aircraft in markets. The company continues to unlock value from its TudoAzul Loyalty Program.
As of December 31, 2023, the company had codeshare agreements with United Airlines Inc. (United), Transportes Aereos Portugueses, SGPS, S.A. (TAP), JetBlue Airways Corporation (JetBlue), Turkish Airlines, Ethiopian Airlines, Emirates, Air Canada, Copa Airlines, Beijing Capital, Alitalia, and Avianca Colombia, as well as 26 interline agreements with a number of other international airlines, allowing it to handle passengers traveling on itineraries that require multiple flights on multiple airlines widening its network. As part of its plans to expand globally, it has established strategic partnerships with United and TAP. The company is exploring joint ventures and other arrangements with its partners to determine the most effective and beneficial ways to leverage these relationships for all parties. It views possible future relationships with other airlines as strategic ways of allowing it to expand its network with connectivity throughout the United States, Europe, and Asia without having to commit the full resources on its own. The company plans to focus its international growth on connecting its strong presence in Brazil via its hub in Campinas, Belo Horizonte and Recife and its current long-haul international destinations Fort Lauderdale, Orlando, Lisbon and Porto. The company views its partnerships as critical to its global connectivity but also as a way to addressing macroeconomic pressures in Brazil.
Products and Services
The company’s principal product is the scheduled air transportation of customers, which generates passenger ticket and non-ticket revenue. In addition, it generates revenue through its wholly-owned TudoAzul loyalty program, cargo transportation operations, and its travel and tourism operations.
Scheduled Air Transportation
The company targets business travelers by offering convenient and frequent service to numerous destinations, 95 of which it served exclusively as of December 31, 2023. It also targets leisure travelers with its extensive route network and its segmented pricing model, offering low fares for advance purchases.
In addition to generating passenger revenue derived from the sale of tickets and TudoAzul points, the company generates ancillary revenue by selling travel insurance and by charging fees for certain services, such as checked baggage fees, cancellation fees, change fees, no-show fees, call center booking fees, online booking fees. It also offers upgrades to its premium ‘Espaço Azul’ seats that feature additional legroom in its domestic flights and to ‘Economy Xtra,’ ‘SkySofas’ and business class seats available on its international flights serviced with Airbus A330 and A350 aircraft. Its ‘Economy Xtra’ cabin has an additional three inches of legroom in a 2-4-2 configuration and its ‘SkySofas’ are an innovative feature consisting of four economy seats with a footrest that can be raised to create a flat, sofa-like, flexible space for families to sleep together more comfortably.
Route Network
The company offers flights to every region in Brazil and to select international destinations.
As of December 31, 2023, the company served 167 destinations, including 147 cities across every region in Brazil, the flights represented 40% of the total domestic departures in the country. Its main hub is in Campinas at Viracopos airport, approximately 100 kilometers (62 miles) from the city of São Paulo. From Viracopos airport, it provided non-stop service to 62 Brazilian cities accounting for 96% of that airport’s 141 daily domestic departures as of December 31, 2023.
The company’s second largest hub is located at Belo Horizonte’s main airport, where it served 51 domestic destinations and had a 67% share of that airport’s 125 daily departures as of December 31, 2023. This hub serves Belo Horizonte, which is the capital city of Minas Gerais, the third wealthiest state in Brazil according to IBGE.
The company also builds a hub in Recife, which serves 34 non-stop destinations. It had a 71.2% share of Recife’s airport’s 103 daily domestic departures as of December 31, 2023. Recife is one of the largest cities in the Northeast of Brazil, and this hub allows it to increase flight connectivity within the Northeast region to other parts of Brazil.
The company’s diversified network allows it to connect not only its main hubs but also strategic airports throughout Brazil located in, among other places, São Paulo (Guarulhos and Congonhas airports), Rio de Janeiro (Santos Dumont and Galeão airports), Porto Alegre, Cuiabá, Belem and Manaus.
Strategic Partnerships, Alliances, and Commercial Agreements
General
The company’s commercial cooperation agreements establish broad frameworks for cooperation in such areas as code-sharing, interlining, marketing service, and aircraft and engine maintenance, among other areas. Interline agreements are entered into among individual airlines to handle passengers traveling on itineraries that require multiple airlines, allowing passengers to utilize a single ticket and to check their baggage through to their final destination.
The company has entered into a commercial cooperation, a codeshare and frequent flyer reciprocity agreements with United and TAP and has entered into another 9 codeshare and 26 interline agreements with several other international carriers, including JetBlue, Etihad Airways, Air Europa, Lufthansa, Copa Airlines, and Aerolíneas Argentinas. The company believes these strategic relationships allow it to increase its load factor on flights departing from Brazilian airports operated by its partners and expand its brand exposure internationally for its Brazil-based and international customers. The company’s codeshare agreements with United, JetBlue, and TAP allow it to sell flights to virtually all destinations served by these carriers, contributing to the growth of the international operations and offering its passengers additional connectivity beyond Brazil. Furthermore, its relationships with other carriers allow it to expand its cargo operations by offering these services beyond the locations served by its own aircraft.
As a result of these arrangements and relationships, the company’s customers has access to more than 200 additional destinations worldwide. It believes that its strategic relationships with its partner airlines, particularly United and TAP, provide its TudoAzul members with a broad range of attractive redemption options and allows to leverage TudoAzul program beyond its own network.
The company has a strategic partnership with Lilium, to build an exclusive eVTOL (electric vertical take-off and landing vehicles) network in Brazil. The efforts to implement operations through eVTOL, a 100% electric airplane model with zero carbon emissions, is part of the company’s strategy to innovate and maintain a sustainable business model, aligned to its ESG commitments and the best practices in the market.
In October 2021, the company entered into a partnership with Disney to offer a unique experience to its customers.
TudoAzul, the company’s wholly-owned loyalty program, had more than 16 million members as of December 31, 2023. Azul Viagens, the company’s vacations business, is another important driver of margin expansion.
Codeshare Agreement
ALAB signed, in 2015, a codeshare agreement with United and TAP which will provide transport of passengers whose tickets have been issued by one of the airlines and the service is performed by the other.
TudoAzul Loyalty Program
The company’s wholly-owned loyalty program TudoAzul, which was launched in May 2009, aims to enhance customer loyalty and brand recognition. TudoAzul had more than 16 million members as of December 31, 2023. TudoAzul members earn at least one point and up to six points per each real spent in tickets on Azul.
Redemptions of points for one-way tickets start at 3,000 points and go up for more expensive flights. TudoAzul also offers a points plus cash option, in which tickets can be purchased using a combination of cash and TudoAzul points. Periodically, as a promotional tool, it may offer awards for fewer than 3,000 points.
The company offers last-seat availability to TudoAzul members. Most TudoAzul points expire two years after issuance. Frequent flyers achieve ‘TudoAzul Topázio’ (Topaz) status when they accumulate 5,000 qualifying points, ‘TudoAzul Safira’ (Sapphire) status once they accumulate 10,000 qualifying points and ‘TudoAzul Diamante’ (Diamond) status once they accumulate 20,000 qualifying points during a given calendar year. Topázio, Safira or Diamante status is valid during the rest of the year of qualification and the entire following year, and provides the following benefits, among others: bonus points, check-in privileges at major airports like Viracopos, Santos Dumont, Confins, Brasília and others, priority boarding, higher baggage allowances, and dedicated telephone, and e-mail services.
The company’s TudoAzul business partners, which offers TudoAzul members options to accrue and redeem points, include financial institutions, such as Itaú, Santander, Livelo (Banco do Brasil’s and Bradesco’s loyalty joint venture), and Caixa, retailers (Casas Bahia, Magazine Luiza and Fast Shop), and travel partners (including Accor, RentCars, Hertz and Booking.com).
In September 2014, the company also launched an Azul-branded credit card in partnership with Banco Itaucard S.A. In addition, in December 2015, it launched Clube TudoAzul, an innovative subscription-based product through which members pay a fixed recurring amount per month in exchange for TudoAzul points, access to promotions and other benefits. It also offers members the ability to buy points to complete the amount required for a reward or pay a fee to renew expired points or transfer points to a different member’s account.
Marketing
The company strives to achieve the marketing impact through efficient and effective marketing and advertising strategies. Its marketing and advertising strategies are consistent with operating model. Its marketing and advertising techniques focuses on social networking tools (Google Search, Facebook, Twitter, and YouTube), email, websites, mobile marketing, and generating word-of-mouth recognition of its service, including through TudoAzul loyalty program and visibly branded bus service between São Paulo and Viracopos airport. Its marketing and advertising strategies also involve sales and promotion campaigns with its travel partners.
In addition, the company increases its visibility and brand recognition by featuring Azul advertisements on the individual entertainment screens at every seat in all of E-Jets and Airbus fleet, which feature free live television on domestic flights, and by offering its onboard customers the Azul Magazine (which is also a source of revenue, mainly from paid advertisements), snacks branded with its logo, Coca-Cola soft drinks and seasonal free premium beer happy hours. It also builds its brand by offering its business travelers with its VIP lounge in Viracopos airport. Additionally, it engages in marketing by maintaining planes in livery painted with recognizable symbols, like the Brazilian flag, and symbols supporting important social causes, like breast cancer awareness, a social cause that it has supported through its corporate social responsibility platform since its foundation. It also place logos of key partners on its planes to generate additional revenue, such as Sky TV and Coca-Cola, and feature high visibility partnerships, such as ‘The World’s Most Magical Fleet’, with Walt Disney World Resort. Furthermore, it engages in guerilla marketing campaigns (which consist of marketing activities conducted in public places, such as the airports and the aircraft that it operates) to enhance its brand recognition and provide promotions directed at its customers.
Sales and Distribution
The company sells its products through six primary distribution channels: website, mobile app, call center, airport stations, Azul Viagens freestanding stores, and third parties, such as travel agents, including through their websites. Direct internet bookings by its customers represent distribution channel.
In conjunction with Navitaire, a provider of host reservation services and other ancillary services, including data center implementation services, network configuration, and design services, the company developed a direct connection to travel agencies using online portals that bypass expensive distribution through GDS, resulting in a considerably lower indirect distribution cost. This allows travel agencies to use common internet programming schemes, which have almost fixed low costs that do not vary by sales, to develop their front end, mobile and internet applications with a direct connection to its reservation system. In connection with sales booked through travel agents, the company pays incentive commissions to travel agents who attain its sales targets rather than upfront commissions.
The company maintains a high-quality call center, staffed solely with its crewmembers, as it believes that having a high-quality call center is crucial to its culture focused on customer service. It charges a fee for reservations made through its website and call center to offset its operating costs.
Fleet
As of December 31, 2023, Azul had a passenger operating fleet of 183 aircraft and a passenger contractual fleet of 189 aircraft, with an average aircraft age of 7.4 years excluding Cessna aircraft. At the end of 2023, the 6 aircraft not included in its operating passenger fleet consisted of 3 Embraer E1s subleased to Breeze, and 1 ATR and 2 Embraer E1s being prepared to exit the fleet. Azul ended the year with approximately 82% of its capacity coming from next-generation aircraft, far higher than any competitor in the region.
Embraer
The company is the first airline in Brazil to operate Embraer E-Jets. The company has partnership with Embraer S.A. (Embraer), which is headquartered in São Jose dos Campos, São Paulo, approximately 100 km from headquarters in the city of Barueri, state of São Paulo, and approximately 150 km from its main hub in Campinas, São Paulo. Its Embraer E-Jets has a two-by-two cabin layout with no middle seats, and its aircraft are configured to offer standard seats with 31 inches of legroom and premium seats called ‘Espaço Azul’ with 34 inches of legroom. Its over-wing exit seats (four per aircraft) offers a spacious 39 inches of legroom. Its first generation of Embraer E-Jets (the ‘E1s’) are fuel-efficient, with fuel consumption averaging approximately 20% less than a Boeing 737 series, according to Embraer, and thus offering significantly lower trip costs than larger narrow-body aircraft.
ATR
The company is an ATR (aircraft with turboprop propulsion manufactured by Avions de Transport Régional G.I.E.) operators and ATR is the world’s largest manufacturer of 50-to-70-seat turboprop aircraft. ATR turboprop aircraft provide significantly lower operating costs than jets, with fuel consumption averaging approximately 45% per trip less than a comparably sized jet. The ATR 72-600 is the newest member of the ATR family known for its high efficiency, dispatch reliability and low fuel burn. It features a new glass cockpit, communications and flight management system. Like Embraer E-Jets, ATR aircraft have a two-by-two layout with no middle seats, and its aircraft are configured to offer 30 inches of legroom, which is comparable to Embraer E-Jets. The company began operating ATR aircraft in March 2011 for two strategic purposes: to serve short-haul direct routes between smaller destinations where jet aircraft would be less profitable, and to feed customer traffic from secondary markets into its main hubs.
Airbus
The company’s A320neos are equipped with CFM International LEAP-1A engines and has approximately 15% less fuel consumption and less noise production when compared to the A320ceos, as well as an increase in range of approximately 500 nautical miles.
The company began operating the Airbus A330-200 aircraft (the ‘A330ceo’), configured up to 272 seats, in December 2014, and has 5 aircraft serving Fort Lauderdale, Orlando, and Lisbon with these aircraft. According to Airbus, the A330 aircraft delivers better economics than competing aircraft, meets higher environmental standards, and provides greater passenger comfort. It also has 5 Airbus A330-900neo aircraft (the ‘A330neo’). This aircraft comes with 298 seats in a high-density configuration. The cabin interior is divided into 34 business class, 108 ‘Economy Extra’, and 156 economy seats. The A330neo has the most advanced passenger cabin today dubbed ‘Air Space by Airbus,’ bringing together an enhanced experience for passengers and optimum performance based on comfort, ambience, service and design. Moreover, the A330neo reduces fuel consumption by 14% per seat compared to the A330ceo, making it the most cost-efficient, medium range widebody aircraft in the market.
The company began operating the Airbus A350-900 aircraft (the ‘A350neo’), configured up to 334 seats, in December 2022. According to Airbus, the structure of the A350neo includes more than 70% state-of-the-art items, such as composites, titanium, and modern aluminum alloys to create a lighter and more economical aircraft.
Seasonality
The company’s operating revenue and results of operations are substantially dependent on overall passenger traffic volume, which is subject to seasonal and other changes in traffic patterns. It generally expects demand to be greater in the first, third, and fourth quarters of each calendar year compared to the second quarter of each year (year ended December 31, 2023).
This demand increase occurs due to an increase in business travel during the second half of the year, as well as the Christmas season, Carnival, and the Brazilian school summer vacation. Although business travel can be cyclical depending on the general state of the economy, it tends to be less seasonal than leisure travel, which peaks during vacation season and around certain holidays in Brazil.
Intellectual Property
Brands
The company has registered, or applied for registration or renewed licenses for approximately 100 trademarks with the INPI including, among others, the trademarks ‘AZUL’, ‘TUDO AZUL,’ ‘AZUL LINHAS AEREAS BRASILEIRAS,’ ‘AZUL FLEX,’ ‘AZUL PROMO,’ ‘AZUL VIAGENS,’ ‘VOE AZUL,’ and ‘AZUL CARGO EXPRESS.’. It has also registered / applied for approximately 20 trademarks outside Brazil, such as the European Union, Argentina, Chile and China.
The company operates software products under licenses from its vendors, including Oracle, Trax, Sabre, Navitaire, Amadeus, Comarch, Lufthansa, Sita, Jeppesen, SmartKargo, Juniper, Adobe, Service Now, Microsoft, and OneTrust. Under its agreements with Embraer, ATR, and Airbus it uses their knowledge and proprietary information to maintain its aircraft.
Domain Names
The company has also registered several domain names with NIC.br, Brazil’s internet domain name registry, and other domain registrars. The registered domains are, among others, ‘voeazul.com.br,’ ‘flyazul.com,’ ‘azulcargoexpress.com,’ ‘azulviagens.com.br,’ and ‘tudoazul.com’.
Regulation
Under the Brazilian Constitution, air transportation is a public service. It is therefore subject to extensive governmental regulation and monitoring by several federal agencies and entities. The sector is regulated by the Brazilian Aeronautical Code, which covers air service concessions; airport infrastructure and operations; flight safety; airline certification; leasing, taking security, disposal, registration and licensing of aircraft; crew training; inspection and control of airlines; public and private air carrier services; civil liability; and penalties for infringement.
All of the company’s activities are subject to registration with the Brazilian Institute for the Environment and Renewable Natural Resources (Instituto Brasileiro do Meio Ambiente e dos Recursos Naturais Renováveis) or IBAMA’s Federal Technical Register or CTF.
The company holds all necessary operating and airworthiness authorizations, certificates, and licenses and are operating in compliance with applicable United States Federal Aviation Administration (FAA) and United States Department of Transportation (DoT) and applicable international regulations, interpretations and policies.
The company’s service to the U.S. is also subject to the U.S. Customs and Border Protection, or CBP (a law enforcement agency that is part of the U.S. Department of Homeland Security), immigration and agriculture requirements and the requirements of equivalent foreign governmental agencies.
History
Azul S.A. was founded in 2008. The company was incorporated in 2008.
