Azul stock soars over 40% higher on optimistic outlook

Shares of Brazilian air carrier Azul (NYSE:AZUL) rocketed nearly 50% higher on Monday as management remained upbeat on the path ahead.

For Q4 the company reported an adjusted EPADR loss of $0.83 on $855.7M in revenue. Analysts had anticipated a $0.35 loss on $884.61M in revenue. Passenger revenue rose 19.4% from the prior year ahead.

Despite the deepening losses that clouded Q4 results, management forecast blue skies ahead for the Brazilian airline.

“Looking ahead to 2023, we are encouraged by the strong demand environment and important milestones in our route network,” CEO John Rodgerson commented. “We will more than double our operations to 84 daily flights, serving the largest corporate destinations and showing new customers all that Azul has to offer. In addition, our international capacity is reaching full recovery in 2023, supported by new routes and destinations, including recently announced Paris and Curaçao. We are also adding more international flights to the United States from Belo Horizonte, Recife, Manaus and Belém.”

Flights to the expanded network are also due to start later this month from São Paulo’s downtown Congonhas airport. Rodgerson indicated that the company should see record revenue of R$20B ($3.5B) in 2023 and record EBITDA of more than R$5B ($961.65M), 40% above pre-pandemic levels.

The company also announced commercial agreements with “lessors that represent more than 90% of lease obligations.” Under the agreements, lease payments will be reduced to eliminate Covid-related deferrals in exchange for a “tradeable note maturing in 2030 and equity priced in a way to reflect Azul’s new cash generation, improved capital structure, and reduced credit risk.” Negotiations are also ongoing with OEMs, according to management.

“As a result of these successful negotiations with lessors and OEMs, Azul’s originally projected cash gap for 2023 will now be eliminated, and cash flow should be positive in 2024 and beyond,” the earnings release explained. “In addition, this comprehensive solution and its corresponding reduction of our credit risk should significantly reduce our cost of capital, reflecting our high margins and cash generation and increasing access to the capital markets.”

Shares of Azul (AZUL) accelerated 48.92% higher shortly after Monday’s market open. Still, shares remain over 80% below pre-pandemic levels.

Read more on why Seeking Alpha contributor Tomas Andrade Campanini advised caution on the stock in January.