New York May

Transcription

1 New York May

2 Why Azul? David Neeleman Founder and Chairman 2

3 Today s Presenters Azul s Business Model John Rodgerson Chief Executive Officer Network and Product Abhi Shah Chief Revenue Officer Azul s Secret Sauce Jason Ward V.P. People and Customers Returning Value to Shareholders Alex Malfitani Chief Financial Officer 3

4 Azul at a Glance The fastest-growing, most profitable and best positioned airline in Brazil #1in destinations served (100+) Orlando Ft. Lauderdale/Miami Boa Vista Cayenne Macapá Lisbon #1 in 86% of markets served #1 in domestic departures (1/3 of departures) #1 in on-time performance and customer satisfaction #1 Profitability and balance sheet Tabatinga Tefé Manaus Santarém Parintins Altamira Marabá Carajás Belém São Luís Teresina Imperatriz Parnaíba Jericoacoara Fortaleza Fernando de Noronha Natal Juazeiro do Norte João Pessoa Porto Velho Campina Grande Alta Floresta Petrolina Recife Palmas Ji-Paraná Sinop Paulo Afonso Maceió Cacoal Sorriso Vilhena Barreiras Aracaju Lençóis Feira de Santana Salvador Cuiabá Barra do Valença Garças Brasília Vitória da Conquista Ilhéus Rondonópolis Goiânia Montes Claros Rio Verde Caldas Novas Governador Porto Seguro Corumbá Uberlândia Valadares Araxá Teixeira de Freitas Campo Grande Uberaba Ipatinga Divinópolis Belo Horizonte (Confins) Três Lagoas S. J. do Rio Preto Bonito Araçatuba Varginha Presidente Prudente Ribeirão Preto Vitória Zona da Mata Dourados Marília Campina Campos dos Goytacazes Londrina Bauru Cabo Frio Maringá s São Paulo São Paulo Rio de Janeiro Cascavel (Guaruhos) (Santos Dumont / Galeão) (Congonhas) Foz do IguaçuPonta Grossa Curitiba Lages Chapecó Joinville Passo Fundo Navegantes Santo Angelo Florianópolis Uruguaiana Caxias do Sul Jaguaruna Santa Maria Porto Alegre Pelotas Hub Córdoba Bariloche Punta Del Este Montevidéu Buenos Aires Rosario 4

5 Azul Milestones 2009 Fastest airline to one million passengers 2011 Launch of ATR fleet 2014 Order of 63 A320neos and 33 Embraer E2s Launch of international flights TAP and HNA partnership Transferred 15 aircraft to TAP during crisis Raised US$ 250 million in start-up capital Launched Azul in 10 months 2012 Acquisition of Trip, largest regional airline in South America United partnership TudoAzul dedicated management IPO US$ 643 million 5

6 Brazilian Aviation Market Growth Potential Number of passengers transported more than doubled over last decade, with Azul capturing over 50% of additional traffic Brazil Domestic Passengers by Year (in millions) Brazil GDP CAGR +1.5% Real depreciation 64% CAGR +8% 91 Azul captured 51% of pax growth E Source: ANAC, ABEAR, IBGE and Bloomberg 6

7 Brazilian Aviation Market Growth Potential Largest country in Latin America and one of most underserved in terms of air travel Flights Per Capita Country Potential 2.6 Aviation in Brazil has much lower penetration than much smaller countries with similar income levels Favorable macro environment, with expected GDP growth of ~2.5% and lowest interest rate in history GDP per Capita (2017, US$ 000) Brazil 2007 Brazil 2017 Colombia 2017 Mexico 2017 Chile 2017 US 2017 Brazil Colombia Mexico Chile 8.5 M 1.1 M 2.0 M 0.8 M Area (km²) Source: Azul, IATA, CEBR, ABEAR and IBGE 7

8 Azul s Business Model John Rodgerson CEO 8

9 Keeping Track of Promises Diligently executing on margin expansion drivers, with further room for improvement Operating Margin Growth Breakdown A320neo / E2 TudoAzul Ancillary Revenues Macro Environment Lower CASK More efficient fleeting Additional capacity for loyalty, cargo and package businesses Further reduce share gap to competitors Additional products More efficient pricing Baggage and other fees Fare families Further expansion of Azul Cargo and Azul Viagens Improvement in GDP growth Lower interest rates Controlled inflation

10 Barriers to Entry 1 2 Largest network with multiple hubs Unparalleled network connectivity 3 4 Diversified fleet Renowned Customer Service Sustainable and resilient business model built over the last 10 years 10

11 % of Flights Appropriately-Sized Aircraft for the Brazilian Market With a diversified fleet configured with 70 to 174 seats, Azul is best positioned to match capacity to demand Passengers per Domestic Flight in Brazil (2017) 65% of flights in Brazil have less than 120 passengers onboard 15% 20% 26% 27% 3% 7% 1% 0% Passengers 33 ATRs 70 seats 66 E-Jets seats Source: Azul, ANAC and companies 14 A320neo 174 seats 11

12 Limited Route Overlap with Competitors Azul s limited overlap with other Brazilian carriers gives it significant pricing advantage Azul Routes Leadership () Competitors Route Overlap Up from 56% in 2012 Only Carrier 71% Most Frequencies 15% Leadership Share % of routes 86% % ASKs 85% 90% 86% 81% 86% Others 14% % Revenues 86% Overlap with Competitors 27% 21% 19% 9% Azul-Gol Azul-LATAM Azul-Avianca LATAM-Gol Avianca-Gol Avianca- LATAM 12

13 Market and Route Leadership Azul is strongly positioned in Brazil, with strong presence in underserved markets Most Relevant Airline by City (December 2017) Azul Route Position (Domestic, December 2017) Domestic Cities Served Cities Where #1* Population in #1 Cities (million) Strong penetration in underserved markets Hubs located in Campinas (VCP) and Belo Horizonte (CNF), two of the largest airports and metropolitan areas in the country Azul Gol TAM Azul Gol TAM Azul Gol TAM Azul Gol LATAM Source: Azul, ANAC and Companies * Considers leadership by number of departures. 13

14 Next Gen Aircraft: Key Driver of Margin Expansion Replacing older generation aircraft with new generation aircraft to further strengthen Azul s margins going forward E2 and A320Neo CASK Advantage CASK Average -25% -29% ATR E-Jet E2 A320neo Trip cost Average E195 E2 A320neo 118 seats 136 seats 174 seats ATR E-Jet E2 A320neo 14

15 Next Gen Aircraft: Key Driver of Margin Expansion Replacing older generation aircraft with new generation aircraft to further strengthen Azul s margins going forward Next Generation Aircraft Percentage of Total ASKs E2 A320neo 38% 3% 47% 6% 27% 14% 35% 41% E 2019E 2020E 15

16 Exit Exit Exit Exit WC WC A B C D E F WC WC A320neo: Key Driver of Future Profitability The addition of A320neos to Azul s fleet is further enhancing profitability in long-haul markets Cost Comparison: A320neo vs. E195 (Campinas Salvador)* A320neo Highlights Trip cost (R$) +5% Seat cost (R$) -29% 20 A320neos expected to be in service by end of 2018 Expected to burn 15% less fuel than previous A320 model E195 A320neo E195 A320neo Seats Also supports further growth of TudoAzul, Azul Viagens and Azul Cargo A320neo Seat Map A320neo A320neo provides 56 additional seats at virtually no additional cost per flight compared to previous aircraft used in long-haul missions, significantly reducing cost per seat * Assuming 1,458-km range flight from Campinas to Salvador 16

17 Network and Product Abhi Shah Chief Revenue Officer 17

18 Leader in 7 Out of Our Top 10 Airports Nonstop Destinations by Airport (December 2017) Flights per day on Selected Routes Azul LATAM Gol Departure Rank Destination Rank Top Routes by # of Flights Azul Gol TAM 1. Campinas 2. Belo Horizonte 3. Recife st 1 st 1 st 1 st 1 st 1 st Campinas Rio de Janeiro 13x 2x - Campinas-Belo Horizonte 9x - - Belo Horizonte Rio de Janeiro 7x 6x 4x Campinas Porto Alegre 7x Rio (SDU) 5. Curitiba 6. Porto Alegre 7. São Paulo (GRU) nd 1 st 1 st 1 st 2 nd 1 st 4 th 4 th Campinas Curitiba 7x - - Campinas Cuiabá 5x - - Belo Horizonte Vitória 4x - 2x Campinas Ribeirao Preto 4x - - Belo Horizonte-Montes Claros 3x 1x - 8. Cuiabá st 1 st 9. Goiânia 10. Belém st 1 st 1 st 2 nd Higher frequency attracts business travelers, who value convenience Source: Azul, ANAC and Companies 18

19 Market Share in Corporate Market RPK and Corporate Revenue Share (2017) Average Corporate Ticket Price (Roundtrip, 2017) R$ +14% 18% 28% % 615 Azul 12% 577 Avianca Latam Gol 33% 28% % 32% RPK Shares Corporate Revenue Avianca Latam Gol Azul Source: Abracorp (Association of Brazilian Corporate Agencies) 19

20 Fortress Hub at Campinas Airport Campinas Airport (VCP) is located about one hour from São Paulo in Campinas, one of the wealthiest and most populated regions in Brazil Campinas Airport Influence Area Campinas Airport Catchment Area Campinas Metropolitan Region VCP is the primary airport serving Campinas metropolitan region Population: 3.1 million; economic output: R$ 139B VCP Airport Campinas Catchment Area Convenient and fast highway access to VCP Population: 5.2 million; economic output: R$ 187B São Paulo Metropolitan Region São Paulo: largest city and economic hub in Brazil Population 17.6 million; economic output: R$ 662B Total population in region: 26 million Total economic output from region: R$ 988B VCP vs. GRU Competition Only 4% of VCP passengers reside in São Paulo city Easy access through high-capacity freeways: - VCP: min drive from São Paulo during peak hours - GRU: up to 180 minutes to GRU Source: Azul and IBGE 20

21 Fortress Hub at Campinas Airport 21

22 Strong Connectivity at Multiple Hubs Campinas Strong local demand, runway and terminal capacity, focus on North-South and secondary São Paulo cities traffic Daily Flights 140 Cities Served (non-stop) 52 Connecting Passengers 54% Belo Horizonte Mid-continent hub, strong local demand from the secondary cities in Minas Gerais, shorter flight times to the Northeast % Recife Newest hub connecting all capitals in the Northeast, strongest local and corporate demand in the region, convenient launch point to U.S. and Europe % Focus cities: Belem, Cuiabá, Porto Alegre, Curitiba Belem is the newest North focus city Cuiaba serves the Midwest agro-business region where Azul is no.1 Curitiba and Porto Alegre connect smaller secondary cities in the South 22

23 Exclusive Provider on Key Routes Low number of local passengers means routes cannot sustain new entrants Spoke Example: Ribeirão Preto Campinas Connection Breakdown Local 7% Connecting 93% Exclusive destination Non-exclusive destination Hub-to-Hub Example: Cuiabá Campinas Connection Breakdown Local 11% Connecting 89% Source: Azul 23

24 Appropriately-Sized Aircraft for the Brazilian Market Targeted Routes by Fleet Type ATR seats Avg. Stage Length: 422 km Cost Per Trip (R$ 000): 13.9 Campinas Ribeirão Preto Belo Horizonte Ipatinga Recife João Pessoa E-Jets seats Avg. Stage Length: 793 km Cost Per Trip (R$ 000): 25.8 Campinas Curitiba Campinas Porto Alegre Rio de Janeiro Campinas A320neo 174 seats Avg. Stage Length: 1,487 km Cost Per Trip (R$ 000): 43.2 Campinas Manaus Campinas Recife Belo Horizonte Campinas Source: Azul 24

25 The A320neo Effect: Strengthening the Network Campinas Recife Growth (Replaced E-Jet with A320neo starting Dec. 2016) 4Q16 vs. 4Q17 Number of seats/week +56% Daily flights +33% Load factor +2.0 p.p. Downline revenue +68% Local passengers +26% Connecting passengers +77% A320neo E-Jets ATRs Non-A320neo flights load factor +3.0 p.p. 25

26 Potential New Destinations Over 35 destinations with limited or no air service to be added over next five years New service to stimulate local economy Belém Majority of markets to be served with ATRs Itaituba Sobral Mossoró New destinations represent ~1% of domestic growth Araguaína Balsas Serra Talhada Caruaru Recife Domestic Growth Tangará da Serra Ponta Porã Cuiabá Umuarama Toledo Pato Branco Catalão Franca Barretos Teófilo Otoni Campinas Guarapuava Santos Paranaguá Caçador Guanambi Belo Horizonte Linhares Macaé New destination New cities New frequencies Direct flights 10% 1% 6% 83% Upgauging Sant Ana do Livramento /Rivera Bagé Hub / focus city 26

27 Focused International Expansion Connecting where we are strong to where our partners are strong to maximize passenger traffic 27

28 Codeshare and Joint Venture Partnerships Azul has six codeshare and more than 25 interline agreements with partners worldwide Strategy Codeshare Agreements Capture international connecting traffic in GRU and Recife Strong connecting partners in Fort Lauderdale, Orlando and Lisbon for long-haul services Joint venture with TAP expected to be concluded by December, 2018 Interline Agreements Initiating discussions with United on potential joint venture

29 High Quality Customer Experience Domestic Product 29

30 International Business 30

31 International Economy 31

32 Digital Customer Experience Providing a reliable and personalized experience Modern user interface Streamlined booking process Mobile check-in Electronic boarding pass Self-bag tagging Only app with online chat Same-day flight change option Boarding pass and online chat TudoAzul integration Payment in money, points or combination Ability to enroll in TudoAzul Clube Android APP Ratings Best airline app in Brasil: Rated 4.2 at APP store and Play store Used by 32% of our customers 32

33 Efficient and Low Cost Marketing Strategy Azul s marketing is based on low-cost strategies such as positive word of mouth, strong social media presence, and innovative partnership opportunities Innovative Branding Low-Cost Advertising Strategy Branding Advertising Expenses as % of Sales 0.7% 0.6% 0.5% Azul Online Store Snacks Special Liveries and Guerilla Marketing Social Media Presence 4.2 # of Facebook Fans of Selected Airlines (M) Source: Socialbakers.com 33

34 Product Unbundling In Brazil Regulatory framework in Brazil limits airlines ability to follow unbundling strategy used by U.S and European carriers Ability to charge for unbundled services Type of Service Brazil U.S. Europe Checked bag (June 2017) Carry-on bag Check-in Call center Seat assignment Implementing Same-day flight changes (May 2018) Trip interruption insurance 34

35 Product Unbundling Strategy Additional revenue upside from fare segmentation and product unbundling On track to achieve target of R$100 million in bag fee revenues in % of customers buy bagless fare 30% of passengers that buy bagless fare bring bags to airport Same Day Flight Change Upcoming unbundling opportunities Same-day flight change Seat assignments Self-Tag Bag Drop Further segmenting product by type of customer Move towards basic economy fares 35

36 Azul s Secret Sauce Jason Ward, V.P. People and Customers 36

37 Service-Oriented Company Culture Highly productive workforce of passionate and friendly people who provide our customers with the best flying experience Full-time employees per aircraft¹ Awards Best airline in Brazil Best Loyalty Program in Brazil 89 3rd Best Airline in the World Best Low-Cost Carrier in South America Most on-time LCC in the Americas and most on-time airline in Brazil Best Staff in South America Fastest Check-in in Brazil Source: Azul, competitor s 4Q17 earnings release 1) Considers operating fleet 37

38 Culture Initiatives Crewmember satisfaction scores increased from 70% in 2016 to 77% in

39 Strong Brand Recognition High quality product and exceptional service significantly enhance customer loyalty and brand recognition Net Promoter Score On-Time Performance 2017 FY (OAG, A15*) 68% 64% 61% 55% 84.1% 81.7% 81.4% 79.4% Netflix Azul Amazon Iphone Azul Gol Avianca Latam 89% of customers would strongly recommend or recommend Azul to a friend or relative * Considers arrival within 15 minutes of scheduled time (OAG) Source: Azul NPS data, 39

40 Strong Culture Supported by Azul Values Our crewmembers are trained to implement our values in their interactions with our customers, through being service-oriented and taking individual initiatives Empowered Crewmembers: Trained to be responsible for safe conduct since day one Need to get management approval before saying no to a customer Encouraged to speak-up when concerned Management involved in day-to- day operations: Executives interact with customers and crewmembers during flights Each executive adopts a base and is responsible for making periodic motivational visits 40

41 Focus on Training and Quality Assurance Azul University Excellence Program PEX State of the art training center near Campinas airport Four simulators, 15 classrooms, cabin trainer and FTDs Quality assurance program involving key areas of the company - Performance based on NPS, leadership skills, and ability to promote our values - Annual event to recognize most outstanding crewmembers - Areas include airports, call center, pilots and flight attendants 41

42 Returning Value to Shareholders Alex Malfitani, Chief Financial Officer 42

43 Superior Financial Performance Azul s EBITDAR ranks amongst top performers of peer set and #1 among Brazilian airlines Comparable Companies EBITDAR Margin () 31% 31% 27% 22% 19% 15% 15% 14% Global Legacy Airlines 1 Source: Azul and companies public fillings, adjusted for non recurring items 1) Global Legacy Airlines calculated as average EBITDAR margin of American Airlines, United Airlines, Delta, AF KLM, Lufthansa, and IAG 43

44 Highlights ASK (million) EBITDAR Margin Operating Margin Net Income (R$ million) 6,384 12% 7, % 30.9% 11.1% 12.5% Q17 1Q17 1Q17 1Q17 EBITDAR growth of 20.8% YoY to R$684 million Record operating margin of 12.5% for the first quarter RASK increase of 5.0% YoY combined with a 12.2% increase in ASKs WTI increase of 21% YoY driving total CASK increase of 3.4% Total CASK down 9.5% QoQ Net interest expense reduction of 41.4% YoY to R$77 million 44

45 Strong Liquidity Position Azul maintained a strong cash position while paying off debt during Cash Balance (R$ million) Total Debt (R$ million) Accounts receivables Cash¹ 3,558 3,443 42% of TTM revenue 3.7-9% ,166 2, ,517 2,643 2,277 1Q17 4Q17 1Q17 4Q17 Loan amortization of R$141.1 million in Leverage (Adjusted Net Debt² / EBITDAR) 1) Includes cash and cash equivalents, short-term and long-term investments 2) Total debt plus annual rent multiplied by 7 minus cash 45

46 Azul vs. Peers Liquidity Cash + Accounts receivable % of LTM revenue Leverage (Adjusted Net Debt / EBITDAR) 42% 38% 37% % 27% % 1.5 Azul Copa Volaris Gol Latam Avianca Copa Azul Latam Gol Volaris Avianca 30.6% 30.9% 21.9% 27.3% 14.1% 19.4% EBITDAR Margin ¹ Cash includes cash, cash equivalents, short & long-term investments Source: Copa, LATAM, Gol, and Volaris public filings, adjusted for non recurring items 46

47 Limited Foreign Exchange Exposure Azul has the lowest relative balance sheet exposure to foreign exchange volatility among Brazilian carriers Assets and Liabilities in Foreign Currency (R$ million, ) 5,329 Aircraft¹ 2,970 Security deposits and maintenance reserves 1,303 1,173 TAP Cash in US$ Assets Liabilities ¹ Includes aircraft, engines and spare parts 47

48 Limited Foreign Exchange Exposure Competitive advantage from our efficient workforce and reduced currency exposure Foreign Currency Exposure () Successful Issuance of Unsecured Bond Total Debt (R$ 3.4 billion) 35% 65% R$ US$ US$ 400 million unsecured bond Swapped to 99% of risk-free rate with cap at 4.75 BRL/USD Corp. Ratings Ba3 by Moody s (BB-) / B+ by S&P Issue Ratings B1 by Moody s (B+) / B+ by S&P Non-Aircraft Debt (R$ 2.0 billion) 1% Size US$400 million Maturity October 2024 Issuance October 2017 Yield 6.000% 99% Coupon 5.875% ¹ Includes aircraft, engines and spare parts 48

49 Foreign Currency and Fuel Hedge Policy Three lines of defense: Strong negative correlation between oil and Brazilian real Fuel and FX hedge policy Up to 50% of next quarter s consumption, then 35%, 25% and 15% for next quarters Protect up to 100% of next twelve months financial cash flow in foreign currency High revenue recapture Alone in 71% of markets Active revenue management strategy Oil and Foreign Currency Correlation (WTI and R$/US$) 49

50 Azul Unique Assets Besides higher margins and stronger balance sheet, Azul also has valuable, unencumbered assets not found in other airlines R$ million Convertible bond Pre-paid maintenance expenses (up to 41% of TAP equity value) % owned loyalty program 1,259 TudoAzul Security Deposits and Maintenance Reserves TAP Bond 50

51 TudoAzul: Fastest Growing Loyalty Program Rapidly gaining share in a growing industry TudoAzul Members (M) Gross Billings 48% Q17 +38% % Q17-1% T18 CAGR : 38% 1Q17 Source: Azul, Smiles and Multiplus *Considers Azul, Gol and LATAM only 51

52 High Growth But Still Below Fair Share TudoAzul has gained significant share but still has ample room to grow Market Share (Gross billings ex-airline) TudoAzul Growth Potential Multiplus Smiles TudoAzul Market share* airline passenger revenue () Market share gross billings ex-airline () March % 28% 17% 36% 51% Voted Best Loyalty Program in Brazil March % 37% 46% 1 st Voted Best Loyalty Program in Brazil by Melhores Destinos in 2016, 2017 and 2018 Source: Azul, Smiles and Multiplus *Considers Azul, Gol and LATAM only 52

53 TudoAzul: Wholly Owned Strategic Asset Unlike its peers, Azul still owns 100% of this high-growth, high-margin business Loyalty Program Airline Ownership 100% 53% 47% 73% 27% 70% 30% Airline Airline Float Airline Float Airline Private sale Members (M) High-growth, high-margin business with 100% of cash flows accruing to Azul Set-up and operated as a separate company (Intercompany contracts, dedicated management team and independent areas for IT, pricing, sales, marketing, customer service etc.) Avoid tax inefficiencies by keeping under the same company Source: Azul, Gol, and LATAM, company filings as of March, LifeMiles as of December 2015 (latest available) 53

54 Azul Cargo Express Growth Potential Only logistics provider in Brazil with air service to over 100 destinations Cargo Revenue 61% Air service to 100 destinations and 200 stores nationwide: Franchise model based on commissions Door-to-door deliveries Smaller items with high aggregate value 1Q17 Increase in volume share from 9% to 13% YoY driven by A320neos Volume ( tons, 000) E-commerce expected to grow 15% in 2018 Potential JV with Brazil s Postal Service awaiting government approval 7,000 66% 11,615 Addition of two dedicated freighter aircraft to support increasing demand for palletized service 1Q17 54

55 TAP Investment TAP s convertible bond and network connectivity to further boost Azul s results TAP Convertible Bond Leader in traffic between Brazil and Europe (31%) Fleet of 88 aircraft Service to 10 cities in Brazil C-level suite formed by former Azul executives 90M strategic investment in TAP bonds convertible into up to 41.25% of economic interest 2025 maturity with 7.5% annul interest Secured by TAP s frequent flyer program Victoria Revenues ( million) +27% 2,978 EBIT ( million) 107 EBITDAR ( million) 374 TAP Economic Interest After Bond Conversion Parpública & Employees 21% 2,338 41% Azul % Atlantic Gateway

56 Keeping Track of Promises Diligently executing on margin expansion drivers, with further room for improvement Operating Margin Growth Breakdown A320neo / E2 TudoAzul Ancillary Revenues Macro Environment Lower CASK More efficient fleeting Additional capacity for loyalty, cargo and package businesses Further reduce share gap to competitors Additional products More efficient pricing Baggage and other fees Fare families Further expansion of Azul Cargo and Azul Viagens Improvement in GDP growth Lower interest rates Controlled inflation

57 Azul Investment Highlights 1 2 Proprietary network Largest network in the country (100+ destinations) Only carrier on 71% of routes served Differentiated revenue management strategy Strong service-oriented culture High customer satisfaction Leader in on-time performance Multi-year margin expansion plan Fuel-efficient A320neos and E2s with lower CASK High potential from ancillary revenues Strong balance sheet Protection against foreign exchange fluctuations Lowest leverage in country Strategic levers TudoAzul: wholly-owned loyalty program TAP convertible bond Deposits and maintenance reserve

58 58

59 Azul s Fleet Transformation Process Operating Fleet Projection Embraer E2 A320 neo family A330 ATRs E-Jets