Q4 2020 Azul SA Earnings Call
Any of them are goose, founder and chairman and John Rodgerson CEO Ali.
Alex lots of Tony <unk>, CFO, and I'd be shocked our chief revenue officer.
So here for the Q&A session.
Before I turn the call over to David.
I'd like to caution you regarding our forward looking statements.
Any matters discussed today that are not historical facts, particularly comments regarding the company's future plans objectives.
And expect that the pharma constitutes forward looking statements.
These statements are the basis on a range of assumptions that the company believes are reasonable but are subject to uncertainties and risks that are discussed in detail in our receipts of M. N fact sites.
Also during the course of the call the will discuss the no I FRS performance of the measures, which should not be considerate of English relation with debt.
I'll turn the call over to David David.
It takes place.
Thanks for joining us for our fourth quarter 'twenty 'twenty earnings call.
It's always going to have to start thinking of amazing.
The crew members.
It is not an exaggeration to say that it was due to the effort sacrifice. The we're able to exit 2020 significantly stronger position than we could ever imagine when the crisis, yeah I'm humbled by their love of our company I know this is going to be of key towards to our success going forward.
When we started zillow, we always use of our competitive advantages would lead to our sustainable growth as you can see on slide three.
It was these competitive advantages such as fleet flexibility network connectivity.
70% exclusive routes, 80% today and award winning customer service that has allowed us to emerge from this crisis stronger.
By the way, let me remind you one more time that in 2020, we were voted the best or on any of the world by Tripadvisor.
As we turn to slide four it is incredible to think that by December we had the strongest recovery of the airlines.
The fastest in the world.
We restarted serves to an astounding 92 cities in our network since April of last year I'm not sure. There is any airline in the world that has brought back. So many destinations. So first what that means is the Brazil, it's more connected than ever it means that we're able to meet the needs of the recovering demand.
In the market in addition to transport of Doctor's medical supplies and Backseats of all.
As you can see in slide five I am so proud of our entire absorbed.
For how they support it and continue to support Brazil. In this time of need we were the first airline to commit the transporting vaccines for free throughout Brazil, using our net working belly space to date, we have transported for millions of doses.
In addition, we have delivered more than 100 tens of cargo, including ask oxygen cylinders respirators structures. The hospital supplies to critical areas all of the country.
We know that Brazil is currently the difficult phase of the pandemic as it continues to impact too many lives, but we know that help is on the way with the significant increase in vaccines for the March period and beyond we are optimistic for our continued strong recovery.
Our fourth quarter numbers show that our business is resilient and we are confident that we put ourselves in a position to continuing the growth growing the best airline in the world.
And I would be remiss, if I didn't give a really.
Hearty, thanks to our management team you know, it's really unusual to have 12 years of and our senior management team all the founders of the company.
Led by John Rodgerson, and Flavio and Alex cannot be adjacent.
I am I, absolutely believe that having the founders had.
Have allowed us to.
To do better and to leave this crisis quicker so with that I'll turn the time over to John.
And thank you again and they give more details on the results.
Yeah.
Thanks, David I would also like to express my gratitude to our crew members, who have repeatedly shown us their dedication and passion for this company without their support these results would simply not be possible.
As you can see on slide six in the fourth quarter. We grew our top line revenue by 121% to $1 8 billion Reais, while expanding our EBITDA margin to 10, 8% of 43 point improvement quarter over quarter.
While recovering our network, we doubled our ask case in the quarter, even with the increasing capacity are pressed increased a strong 23% during the fourth quarter, while cask decreased 34%. This price improvement is a clear sign of the effectiveness of our network to access demand that nobody else can.
Turning to slide seven the management plan developed during the pandemic was essential to support us during the crisis, we actively managed our capacity reduce fixed costs and engaged all stakeholders to increase our liquidity through the year.
These agreements were critical in creating the conditions for us to implement our accelerated recovery and generate cash in the process. This is why the flying we are doing makes so much sense. It actually generated cash in the fourth quarter and allowed us to start repayments to our suppliers, we reduced our accounts payable balance by 362 million of reaction in the quarter.
And paid down over $400 million and aircraft debt and manage to not burn cash.
We ended December with cash of over 4 billion Reais the highest cash balance since we founded as the 12 years ago with this robust cash balance along with our total liquidity of $7 9 billion Reais. We are now prepared to turn our attention to 2021.
Moving to slide eight you can see that our recovery trajectory is intact domestic capacity for the first quarter of this year will exceed that of 2019, our network advantage combined with our fleet flexibility has stimulated demand throughout our network, enabling this rapid rate of recovery.
Slide nine gives you a clear perspective on the competitive dynamics here in the domestic market. Since we started as of all we have always said we wanted to build the different airlines 12 years later as we emerge from the pandemic our competitive advantage has never been stronger we ended the year with more than 90% of our domestic capacity recovered while remaining true to our network strategy.
By being the only carrier in 80% of the routes we serve.
On slide 10, we further show how resilient our revenue base is and how the network advantage of directly drives results publicly reported data from the association of corporate travel agencies shows that in January we had a market leading 38% revenue share for corporate travel agencies and the.
The right side of the chart average ticket prices show absorbed down only 2% in January 2021, compared to last year further evidence that we do not need to lower fares as we continue on our recovery trajectory. It's our network that brings the demand.
Moving to slide 11, we are very excited about the opportunities in logistics.
The old cargo increased revenues in the fourth quarter by 64% year over year, the business set new revenue records in each of the months during the quarter. This growth was driven by broad expansion in all segments of the logistics market, especially E Commerce Commerce, our logistics business provides a unique and vast array of logistics.
For our customers the combination of the largest domestic passenger network together with the most flexible fleet is able to provide unmatched fast and reliable service to almost 4000 cities and communities throughout Brazil.
Going forward logistics will be a key area of focus and investment as we of the opportunity to transform logistics in Brazil.
As David said in his opening remarks, Brazil is in a challenging phase of the pandemic our business has been resilient. So far this year, but we will have to actively manage this recent piece of the good news is that the vaccination efforts.
Are underway with more than 9 million doses already applied with.
With dramatic increases in the forecast for March and beyond.
As you can see on slide 12, the Brazilian Ministry of Health latest forecast shows more than 220 million vaccine doses available by July. This forecast also indicate that by May of Brazil will have sufficient doses. The vaccinate all priority groups as we've seen from recent trends in the U S and the U K. This will have a significant.
Impact in bringing down the impact of Covid and as a result, we continue to be optimistic and a strong recovery.
Finally, turning to slide 13, it's important to remind you that is all begins 2021 and the strong position.
It's been exactly one year since the onset of the pandemic one year ago. Today, we had $2 2 billion reais in cash no vaccines on the horizon and flu nearly 70 flights a day at the end of March one year. Later, we have 4 billion Reais in cash 220 million vaccines of rising just in the net.
The four months and more than 700 flights a day of.
Of course, we will have some bumps in the road ahead, but we certainly feel confident in our competitive position.
We are proud of what we've built so far our crew members are more passionate than ever and excited to continue to build and grow the best airline in the world with that David Alex and I are here to answer any of your questions. I just want to highlight my body Alex has COVID-19. So he's at homes, maybe the little slower on a response time today.
But he is doing well and has been helping us get the release of everything out, but with that we'll turn it over to questions.
Okay.
Okay.
Okay.
Ladies and gentlemen, thank you we will now begin the question and answer session. If you have a question. Please press the star key followed by one.
Any time I would like to remove yourself from the question in Q Press Star two.
For those following the call via webcast you May post your questions on the platform and they will be either answered doing during this call our bite ask the Investor Relations team. After the conference is finished.
Our first question comes from Mike Lindenberg of Deutsche Bank.
Hey.
Good morning, everybody and Alex hopefully you feel better very quickly.
Just a couple of here and I guess this is Alex John and John you called out the fact that.
You were maybe breakeven or better on cash burn in the December quarter. When all of the dust had settled what what was what was the.
Burn or generation rate for the quarter.
And how are things shaping up for the March quarter.
Yes, Thanks, Mike.
As I said, we paid down our accounts payable of $360 million of $400 million of debt repayments on the aircraft and I think we burned less than 100000 reais throughout the entire quarter.
We gave guidance that we would burn $1 $5 million of ice and so a lot of people thought we were just postponing payments, but we the flying that IV did in the quarter and you take a look at that 23% per ask improvement when he through 100% more S case into the system and the and the management plan that we set forth that allows us to pay less.
For our aircraft have more time is actually allowed for us to generate the cash, which which are which we use as for the March quarter is seasonally.
The changes, but we're not we're no longer giving our cash forecast because companies like the cash flow of companies that gives cash forecast Mike people worried about the viability, we've never been in a stronger cash position since the start of the xul.
We've proven that we went through the toughest of times and so we've got investments that we'll make in 2021 word and we're moving forward I don't know Alex if you want to comment any further.
No I think that's it thanks for the well wishes, Mike and yeah, I think that covered it.
That's exactly right I think we feel the we're in a very strong cash position and we were able to access the capital markets at a much worse situation than that though we are so I think cash is no longer obviously cash is going to be important for valuation purposes, but nobody should worry about having enough cash to get through the crisis.
Okay, Great and then just one quick follow up on the slides John just slide nine you know the circles, there for you and presumably Golan and Latam Brazil.
Is that are you just looking at that slide are you going to have the most capacity of of any carrier in the month of March.
The biggest circle.
Is that is that with that thing I didn't say, hey, Mike Hey, Mike Happy here.
Those sort of goes at the scale off of the number of routes okay, not the not the scale of.
And they are really meant to show the competitive dynamics in terms of overlap.
And you know what once really really clear is exactly what both John.
John and David said is that we're building a completely different airlines, we built of different airline and the advantages that we've had.
And we built they really been so critical to help us get through this phase and help us recover. So the idea there is the show how different we are of the network and how that's really helping us be resilient.
As we get through.
Great Thanks, and good quarter. Thanks, everyone.
Thanks, Mike.
Our next question comes from Savi <unk> Raymond James.
Hey, good morning, everyone of you feel better soon.
And maybe could you provide a little bit more color about what you saw in the fourth quarter and so far in the <unk> and just on that with you know the leisure I think.
Still recovering back to kind of over 100 per cent of what it was before and so the next leg up is likely business day man. So is it realistic to think that <unk> could be stronger than <unk>, assuming you know vaccine progress continues.
Hey, Savi. Thanks, Yeah, you know as John as John mentioned some of the metrics from Q, you know average fare up 17% load factor of two and a half point of.
RASK.
Scott and sequential year over year RASK improvement as well.
So certainly and it sort of makes sense because as we were talking last year, we knew the bookings we're getting better at.
And we know that a dose.
Those translate into flow and the results per quarter, given the little bit of time and so it reflects the bookings momentum that we had in October in the September October November and that showed up nicely.
Towards the end of December early Jan you kind of had this.
The second phase of Covid here in Brazil start to build.
That's currently being now, but you know what what's really important for us is that how resilient our demand was in that period and let me just give you some data points to highlight that our bookings in January overall.
Were 4% higher than December.
And even though.
Sort of entering the second phase of Covid.
If you look at January and February debt just finished.
Have a nice year over year RASK sequential improvement from <unk> to <unk>.
Corporate if you remember I talked about last year, ending about 40% well that's actually continued to pick up.
In the first few months this year as well so now we're sort of approaching $45, 50% of corporate recovery.
Our average fare that John showed.
Very very resilient and even though we are recovering.
The second only to hilarious.
One of the fastest in the world, we're not having the relatively sacrifice our average fares and actually I look at travel agency data all of the time and we have no evidence that our fares are suffering anymore. In fact, there are more resilient actually which further reinforces the message that really it's our network.
That's helped us in 2019, when we grew 20% and it's really bringing the demand right now, which we always think it's more sustainable and just a final couple of you know our loyalty business. Our loyalty team has done a great job of keeping our.
Customers engaged our loyalty redemptions today in January and February were higher than 2019, our vacations business had more revenue this year than 2019, so and this has not been mentioned as the cargo, which again had a very very strong first two months. So you know.
We were even though Brazil was sort of entering this phase our business was very resilient and so we have plenty of.
The Green shoots if you will that gave us confidence.
Our revenue of around the right path and so that kind of gives you a scenario of kind of where we've been the first two months and.
Again, as John said, we have.
We're confident of that given the strength that we saw the resiliency that we saw that we were on the right of recovery path I think of it.
Of that I'll be debt when you look at the fourth quarter were flying of 90% of the network. There was no vaccinations happening in Brazil in the fourth quarter right and so the.
The cases were down debts were down and so it actually had more people were felt comfortable traveling pre vaccine and so as we look forward to a strong second quarter of vaccination of across the country and the one thing, Brazil does well, Brazil knows how the vaccine people.
It's something that they they produce vaccines in the country. It's the tropical climates, they've dealt with dengue they dealt with flu virus, they've got several vaccination points all throughout the country and so it gives us a lot of confidence yes, we will have a couple of rough much of it.
Brazil, and we don't want to be naive and say that Sao Paulo is not in the Red phase right now it is.
Youre looking with a lot of optimism as you get more and more people vaccine day throughout the country, because Brazilians want of travel Brazilians have proven that they want to travel.
So on that Jon and then if you could it could be stronger than that and when can you, even though it's kind of historically, a seasonally weak quarter or maybe clarity of how should we think about that.
The defense Savi on the kind of this big phase that we're in we're going to have to make adjustments you know sort of March and April potentially I think the second quarter is going to exit.
The stronger with the vaccine impact as a whole will kind of have to see.
How does sort of peak fee is how long it takes to come down and then.
We'll see how <unk> looks over at all but just given the data points that we saw in the first two months of the year given the backdrop of Covid given the fact that of vaccines hasnt really kicked in yet it's really a very very strong starting point and then to have the vaccine impact like youre seeing in the U S with the TSA number.
<unk>.
Youre seeing in the U K, it's really really of good position to be in the.
And the government announced last night that they will be purchasing in the second quarter. The additional 100 millions of doses of the size of that was not in my 220 million number and 38 million of the Johnson <unk> Johnson of vaccine that will also arrive in the second sort of you're really talking a lot of positive news flow on the vaccine front of course, the cases are up and that's the that's the can.
CERN in Brazil, but there's a lot of help on the way.
Okay I appreciate all the color. Thank you.
Thanks Avi.
Our next question comes from the Mackenzie of Seaport Global.
Okay.
Hey, good morning, Thanks, guys a couple of questions here I'm just following up on the last question I Wonder if you just connect the dots on the recovery of little bit further so looking at capacity in the first quarter. It looks like it's probably going to be up about 16% sequentially versus the fourth quarter is.
Is the expectation that the revenue recovery will continue to improve in line with that capacity or is it just simply take a kind of of near term step backwards before we kind of move much stronger in the in the second quarter.
Yeah.
January and February were pretty strong you know as I said with the Brazilians, let me put it that way.
We saw continued year over year RASK sequential RASK improvement.
Which is which is very positive.
We are going to have an impact now in March.
Cause of the set of quarantine.
Quarantine phases of that different cities are in around Brazil to handle this latest speak phase.
So January and February definitely had the sequential improvement.
To see a little bit how market shakes out.
And a little bit into April and then we expect that recovery to come back. So I think theres going to be a little bit of a pause here.
In March and maybe the first part of April before we can get back on track, but you know as I mentioned the data points.
The demand environment that we were seeing was very resilient in the first two months of the year EBIT, even as the case counts. We're building so that gives us great confidence that once the vaccine impact GAAP gets in and we get this latest peak phase under control that it'll bounce back.
I see.
And then you know with respect to the you know kind of the cost ex you know taking feel out of the picture looking at our costs excluding fuel.
You know there was the 31% depreciation of the Hell I'm wondering what the cost you know would have looked like if we if we were on sort of of constant currency versus a year ago and I'm not sure. If you have some perspective that you can share there but.
Just wondering if some of this the cost story is getting distorted by just some of the FX variations here.
Let's let Alex tackle that together with Covid Alice.
Hey, Dan.
So we are we could compare it to Q4, certainly there was a big depreciation of the real between then and now but.
Yes, the cash doesn't compare debt well back to Q4, 'twenty or of Q4 19 because of just the underutilization.
<unk> right, we still have a lot of capacity that we can add and you saw a little bit of this in Q1 right you could see how much of revenues went up by more than 100 per cent and how much of our expenses went up it was a fraction of the right. So there is that operational leverage still in the in the business.
So I think.
We we love comparing.
The two three.
Things, how things would be if the we all had been constant in the fuel had been constant but actually I think of more realistic approach that were looking at right. Now is that you will continue to see reductions in cash going forward, even with the real where it is and even where oil is today because we still have so much idle capacity.
The right and Theres a lot of operational leverage debt.
We can add maybe Albert can talk a little bits of the fleet utilization, we mentioned those numbers in the.
Good day, and I think that's a good way, especially now we're already kind of ramping down the utilization of little bit because of seasonality of because of the second wave, but you know a lot of the cost is already.
In the structure right and so you'll certainly see a reduction in cash going forward.
You compare so there is about a 20% to 30% cash increase if you go back a year ago, even with the with the <unk>.
Constant dollar because theres, so much idle capacity that we're paying for and not utilizing but thats temporary right certainly in the second half of the year, we will be utilizing debt capacity and you'll be seeing the kick in of the operational leverage of all of that revenue coming in with a very small portion of of cost coming through.
All of it.
Very good and Alex I sure Hope you feel better soon the.
The hang in there.
Thanks, Thanks, a lot.
Okay.
Yeah.
Our next question comes from Stephen Trent Citi.
Good morning, guys and thanks very much for taking my call of Alex once again hanging in there and get better soon.
Just a very quickly from me guys.
Great color on the Oh, no you know of route market share and I know the lack of competition, especially on the some of the low density routes.
Give us some color on what sort of cargo.
Competition, you see I mean I remember.
You had kind of taken a look at.
Maybe doing a partnership with the government on the.
Cargo side.
Yeah, Stephen I'll be here in terms of cargo.
You know what we really built out is a very unique capability in terms of handling individual packages.
The board of door and actually don't even like the word cargo anymore. We're using.
It takes a lot more because that's really what it is and so for example in February we handled over a million packages door to door buyers of seller.
So.
That's where we're seeing a lot of growth.
The great offer that we have for e-commerce companies marketplaces, because we can take care of the entire end to end the solution.
And so in that space, we actually don't have much competition, especially when you include the 115 domestic destinations that we have and our ability to with marginal cost of.
Same day next day service utilize our existing out of network to get stuff to remote places all over Brazil.
For e-commerce customers. So that's a very very unique capability that we have and thats something thats grown we also have great strength with our industrial customers.
A big day.
Technology manufacturers.
Automakers as well and we've thrown some assets at the problem that are also unique we have two 737 freighters.
The <unk> hundred 30 domestically we've converted the ones we have ATR quick change. So we really have a unique offering that is unmatched and really again, it's the same philosophy, it's putting the right aircraft in the right market. So if you have of medium sized city.
With a burgeoning e-commerce client base, but not yet ready for a dedicated freighter you can use any one of our dedicated E. One of medium size aircraft and we're really creating.
Demand and we're creating new routes just like we did with the passenger business.
Long time ago. So.
But.
It's sort of unique in terms of the assets that we have and its unique from the capabilities that we have and as John said, we are changing our philosophy away from cargo more to logistics.
<unk> more technology in the process.
<unk> performance on a minute by minute basis, and I'm really excited about how that process and where it can take us and Steve I think there's also an arms race of the E Commerce World growth. So you take a look at the huge e-commerce players in Brazil, and Amazon is just starting getting started here and so that arms race requires logistics solutions and so.
So all of these network as the only network that can get packages to all of these destinations.
Okay, Jonathan <unk>, great color and just.
One other from me quickly and then all the I'll, let someone else ask the question you know when we think about.
The parts of kind of the the the ancillary revenue World you know some of your the U S counterparts have done a great deal with.
The kind of any more of a loyalty program revenue.
The co branded credit card revenue and what have you.
Do you see additional opportunities to optimize what you guys are doing with <unk>.
Yes, yes, absolutely as I said.
Shut off of our loyalty business, because they've really done a great job of keeping customers engaged I'll give you. The example of a credit card.
We actually invested last year in of.
A bunch of technology to enable us to relaunch our credit card.
We relaunched it in September and it absolutely is going to double this year compared to what we had and record number of customers are signing up in.
In the pandemic right and.
It actually has a pretty expensive yearly fee.
So, but it has great benefits it actually it's been rated the best airline co branded card one of the best Cobranded cards at all so.
That population is going to double this year compared to last year. So we're very very excited about that and the the.
The product overall of the unbundled, but you know of cargo logistics, it kind of doubled in 2020, one compared to 2019 as well our vacations business.
It's already above 2019 levels. So absolutely we are using all of the additional tools that we have to help our recovery.
Speed up our recovery and make sure of recapturing as much demand as possible.
The expectation is that every Brazilian shareholder Hasnt azole credit card.
One on ones I'm going to ask you and.
It is very important we're building the brand and so our expectations you have of credit card and supporting our business as we grow and it's the best credit card out there Alex.
Obviously.
Awesome. Please send me up on them.
Thank you again guidance.
Our next question comes from Josh Milberg from Morgan Stanley.
Okay, everyone. Thank you for the call and for the question I wanted to ask.
You could read through.
The fleet plan in light of higher oil prices.
And also the question of the.
Your fleet flexibility.
What's your strategy.
Pretty cautious on that from.
But I think the Alec from the Pos of talks about the potential for all of the short aircraft in 2022.
Okay.
But if you work through eventually bring for delivery of.
Some of the Airbus or Embraer.
While you're on lead time.
That's my first question. Thank you Josh obviously, that's available to US I think Airbus Embraer would love to advance the aircrafts to us, but we are being coy, because we wanted to get a better deal alright, and I think that you know taking aircraft after we've already deferred.
There's an expectation that we get better pricing or we get better financing and so that's what we're in the process of negotiating so we have nothing to announce on this call today.
But I think we're in a in the strategic position.
Network back online.
Certainly we see a lot of potential in the E. Two and the <unk> hundred 20, Neil I flew in the cockpit of the Youtube just last week, it's unbelievable the field of honor that aircraft right and so.
I think that's certainly very strategic for us moving forward.
But it's got to be under the right conditions and as Alex noted.
There's no business, taking new aircraft when you're not fully utilizing all of the aircraft you have right and so what we want to do is to make sure we get back to a 100% utilization of the aircraft that we have before we start to think about kind of bringing in new metal.
Fair enough trying it you said I mean, if you are kind of reasonably.
Reasonably optimistic about.
The lion's share of the population being vaccinated.
No one could have a pretty upbeat outlook for the level of demand recovery in 2022 of lumpy aspect of the question how could a bit of any evolution in.