International Trade and Ports

Azul Targets Gol With Florida Fares as Rivalry Heats Up

By Christiana Sciaudone and Jessica Brice

Azul Linhas Aereas Brasileiras SA will charge “well under” $1,000 round-trip when it starts flying between Sao Paulo and Fort Lauderdale, Florida, later this year, founder David Neeleman said.

The flights will have 271 seats in two classes on Airbus Group NV (AIR) A330-200 planes and promotional fares that will be as low as $600 when service begins, possibly in December. Azul will compete for passengers with Sao Paulo-based Gol Linhas Aereas Inteligentes SA (GOLL4), a low-cost carrier that flies to Miami via Santo Domingo, Dominican Republic, on Boeing Co. (BA) 737s.

“We’ll price competitive with those guys,” Neeleman said yesterday in an interview at Azul’s headquarters in Barueri, Brazil. “We’re going to have a certain percentage of seats that will be very cheap.”

A flight to Miami on Gol for the first week of October cost about $1,079 in a recent online search. Latam Airlines Group (LFL), which operates under the Tam brand in Brazil, was offering tickets starting at $930 for the same time period between Sao Paulo and Miami.

International flights are key to both Gol and Azul’s strategies. Gol is counting on its U.S. flights and partnerships with international airlines to help increase foreign currency revenue to pay for U.S. dollar-denominated debt. Six-year-old Azul is branching into international flying after making a name for itself in Brazil by offering routes to underserved cities like Tefe and Coari.

Azul will expand to Los Angeles and Las Vegas with its seven A330s, Neeleman said. In 2017, it will receive new A350-900s and will have to find new destinations at that time, which could include European cities.

IPO Plans

The company is looking at revisiting plans to go public in December or January, after having shelved an initial public offering in the past. Azul’s investors are pressuring the company to go public, Neeleman said.

“They’ve been in for six years, so that’s a long time for a private-equity investor,” he said.

Brazil hasn’t seen a single IPO this year ahead of the October presidential election. Incumbent Dilma Rousseff is leading the polls.

“Regardless of the outcome of the election, we can go public,” Neeleman said.

Azul is also poised to be the biggest beneficiary of the government’s regional aviation program, since it flies to the most cities already and has the largest number of airplanes suitable for smaller airports, Neeleman said. Brazil is offering subsidies totaling 1 billion reais ($443 million) as of 2015, an amount that will be reviewed annually, said Civil Aviation Minister Wellington Moreira Franco in a July 22 interview in Brasilia.

New Subsidies

“With potential changes in government is someone really going to invest in a whole new fleet unless it’s set for five years or 10 years?” Neeleman said.

The program will provide Azul with subsidies in cities where it was already planning flights, he said. The subsidies will help compensate for high fuel costs.

Should the regional program be a success, Azul could buy or lease additional Embraer SA (ERJ) jets, Neeleman said. Azul has already announced that it will buy 30 E195-E2 jets with an option to buy another 20. The planes won’t start being delivered until 2019.

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