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Azul (AZUL) Grapples With Multiple Headwinds, Down 24% YTD

Shares of Azul S.A. AZUL have declined 24% so far this year on the back of numerous headwinds.

 

Let’s delve into the factors responsible for the downfall.

Exorbitant rise in fuel prices since the beginning of the year has gripped the entire airline industry and Azul is no exception. As fuel comprises the major share of airline expense, an upsurge in the price of this commodity certainly does not bode well for the industry. Such high costs have potential to limit bottom-line growth of the sector participants. Notably, Azul incurred a loss (on an adjusted basis) of 11 cents in the second quarter, impacted by this headwind among other factors. Fuel prices spiked 20.2% in the period.

Another challenge hitting airlines in the Brazilian economy is the currency depreciation. During the second quarter, the Brazilian Real depreciated 12.2% year over year against the U.S. dollar. Together, the fuel cost and currency concern had a negative impact of R$160 million on Azul’s second-quarter results.

What’s even worse is that currency fluctuations and high fuel costs are expected to affect Azul's full-year results as well. The company estimates a respective increase of R$800 million and R$900 million for currency volatility and fuel price in 2018.

Further, the truck drivers' strike in Brazil significantly disrupted the carrier’s operations in May. It had to call off 169 flights between May 24 and May 27 due to a dearth of jet fuel at many airports. Moreover, above-average customer cancellations and no-show rates during the May 28- June 3 period caused the company to trim its flight schedule significantly.  All this in turn, hampered the company’s second-quarter results to the tune of R$ 57 million.

Zacks Rank & Key Picks

Azul carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader Transportation sector are SkyWest, Inc. SKYW, GATX Corporation GATX and Trinity Industries, Inc. TRN. While SkyWest and Trinity sport a Zacks Rank #1 (Strong Buy), GATX carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of SkyWest, GATX and Trinity have surged more than 62%, 32% and 30%, respectively, in a year.

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SkyWest, Inc. (SKYW) : Free Stock Analysis Report
 
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GATX Corporation (GATX) : Free Stock Analysis Report
 
AZUL SA (AZUL) : Free Stock Analysis Report
 
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