What happened
Shares of Brazilian airline Azul (AZUL -5.51%) rose by 10.1% this week to midday on Thursday. The move comes after Azul's well-received first-quarter earnings and outlook for 2023 and 2024.
The earnings report showed the company growing revenue by 40.3% compared to the same period a year ago as the airline enjoyed the benefits of rapidly recovering domestic and international air travel. In addition, Azul reported a substantial improvement in some of its key operating metrics.
For example, available seat kilometers (ASK) increased by 19.1% in the quarter, and management expects a 14% increase for the full year.
Moreover, as Azul improves its ASK, its revenue per available seat kilometer (RASK) is growing much more than its cost per available seat kilometer (CASK). RASK rose 17.7% in the quarter compared to just 8% for CASK in the quarter.
So what
The revenue and operational metrics improvement gives investors confidence that Azul will grow revenue, earnings, and cash flow to reduce its debt leverage. This is a significant issue in the aerospace world, particularly for airlines, as many took on debt during the worst travel restrictions imposed during the pandemic.
For example, Azul ended the year with an adjusted net debt-to-earnings before interest, taxation, depreciation, and amortization (EBITDA) of 5.7 times EBITDA. That figure dropped to 5.2 times EBITDA in the first quarter, and management's guidance calls for a figure of 3.5 times EBITDA at the end of 2023, and 3 times EBITDA at the end of 2024.
Image source: Getty Images.
Now what
Investors will be hoping the travel market remains robust so Azul can carry out its plan to deleverage and improve its balance sheet while expanding capacity. The indications from the first quarter earnings are positive to that effect, and shareholders have been rewarded with a 40% increase in the share price this year.
