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Why Azul Shares Gained Altitude This Week

By Lou Whiteman – Jan 13, 2022 at 1:02PM

Key Points

  • Azul, like most airlines, was hit hard by the pandemic, but the carrier reported December numbers that indicate domestic travel demand is returning.
  • The airline is the best-positioned carrier in Latin America to gain share during a recovery.
  • Investors should be warned the pandemic continues to create a lot of uncertainty, and the timing of a full recovery remains unclear.

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The Brazilian airline finished off 2021 on a high note.

What happened

Brazilian airline Azul (AZUL -8.88%) saw an uptick in traffic in December, an encouraging sign for investors hoping the worst is over for the airline. The news helped spark a rally in Azul shares, with the stock up as much as 13.4% for the week as of close of trading Thursday.

So what

Airline stocks have been hit hard by the pandemic, and Latin American airlines have had more trouble than most. But Azul has held up better than some of its rivals that ended up in bankruptcy, and as the pandemic fades, the airline should have an opportunity to pick up market share.

The airline on Jan. 11 delivered positive news about traffic flows. Azul saw domestic passenger traffic up 20.9% compared to December 2019. For the full year, traffic increased by 2.8% over 2019. Factoring in international travel, which remains restricted, traffic fell 1.9% in December and 17% for the year compared to the same periods in 2019.

A plane flies over silhouetted palm trees.

Image source: Getty Images.

"Our December traffic results continued the momentum seen throughout the fourth quarter of 2021, with strong revenue performance from both leisure and corporate segments," CEO John Rodgerson said in a statement. "While it is early to determine the exact impact of the omicron variant in Brazil, these results give us confidence in the competitive advantages of our business model and our plans for 2022."

As Rodgerson notes, Azul is still dealing with omicron, and there remains reason for concern that other, future variants could delay a recovery. But for investors eager to see good news, the December traffic numbers topped off what was a surprisingly strong 2021 for Azul, and the stock shot higher as a result.

Now what

For investors willing to wait out what might be an uneven recovery and invest in the potential long-term growth in Latin American travel, Azul looks like the best choice out there. Azul has said it is hopeful about acquiring at least parts of some weaker rivals. The airline has been closely linked with a deal for the Brazilian operations of bankrupt LATAM Airlines Group, which would give it control of more than half of the domestic market and a real advantage over rival GOL Linhas Aereas Inteligentes (GOL -9.92%).

AZUL Chart

AZUL data by YCharts

Even with this week's gains, Azul still trades well-below where it did prior to the pandemic. We're still a long way from normal, and it is tough to predict how long it will take for Azul to again fly high. But for those willing to stomach a little turbulence, there is good reason to be excited about Azul right now.

Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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