Brazil’s Azul sees longer recovery as fuel costs squeeze margins after Chapter 11

By Kylie Madry

MEXICO CITY, Oct 20 (Reuters) – Brazilian airline Azul expects its recovery to take longer than previously hoped and is sticking to a cautious growth plan, Chief Financial Officer Antonio Carlos ​Garcia told Reuters, as high jet fuel prices continue to squeeze ‌margins even after the carrier emerged from Chapter 11 bankruptcy protection earlier this year.

Azul still expects to finish 2026 with capacity down about 5% from a year earlier, reflecting a strategy the airline had already adopted before the latest fuel shock, Garcia said ‌late ​Monday on the sidelines of a conference hosted ⁠by the Latin American & Caribbean ⁠Air Transport Association.

“We do see a recovery in a later stage than before,” Garcia said, adding that the timeline could slip by a year or more if fuel prices remain elevated.

Azul cut second-quarter capacity by ​more than 10% from a year earlier in reaction to the fuel-price shock, with modest capacity growth expected to resume from the fourth ⁠quarter.

Garcia said Azul is already bringing back ⁠some frequencies and returning grounded aircraft to service, but stressed ​that this should not be seen as aggressive expansion.

The airline has been able ​to pass on 60% to 65% of jet fuel price ‌increases to customers through fares, he added.

Azul emerged from Chapter 11 in February after restructuring its balance sheet, and said in August that total debt had fallen to 21.4 billion reais ($4.25 billion).

Garcia said Azul was getting closer to ⁠positive free cash flow operationally, but that cash generation was still being held back by payments linked to the restructuring, both from before and after the ⁠Chapter 11 process.

Azul is ‌also leaning more heavily on parts of its business ⁠beyond passenger flying, including its loyalty program, travel services, ​cargo ‌and maintenance operations, Garcia said.

Asked about talk of further ​consolidation in ⁠Latin American aviation, Garcia said Azul was focused on “resetting” its own business rather than evaluating deals.

Last year, the parent company of competitor Gol pulled the plug on merger talks to combine the two carriers, though it left the door open to resuming discussions in the future.

($1 = 5.0404 reais)

(Reporting by Kylie Madry; editing ​by Lincoln Feast.)