John Rodgerson, CEO, Azul, calls for a level playing field for Brazilian carriers. Interview by Graham Newton.
What did it take for the airline to survive the crisis?
The crisis has been the most challenging in any airline’s history. But there some problems specific to Brazil. We didn’t get any government support, for example, while carriers in the United States, Europe, and Asia-Pacific were all getting financial assistance. And at the same time, there was a significant devaluation in the local currency, which fell 25%–30%, and the capital markets were closed to us.
We quickly realized that we would little money coming in. Azul went from about 1,000 flights a day to just 70 a day. There was negative cash flow. So, we had to get together with everybody from staff to fuel suppliers to lessors and manufacturers.
Our aim from the start was to be fair, open and honest. Azul was a very profitable airline pre-pandemic and we had to get everybody to understand that we would be profitable again. If they had to take a gamble during the crisis, we wanted them to bet on Azul.
Out of a workforce of 13,000, 11, 617 took an unpaid voluntary leave of absence for three months. When we took that to other partners, they could see the level of commitment we had to surviving the crisis.
Other airlines in this region went bankrupt and suppliers were getting a few cents on the dollar in repayment. But we explained that partnering with us would mean they would get their money in full.
It was the most difficult test of our company culture and for our partners. We had no help, no revenue. But we survived. We finally managed to access about $300 million from the capital markets in November 2020 and we got roughly double that in June 2021.
We are taking the long-term view and making sure that we have enough cash to continue growing. And we are making sure we repay the commitment our partners made to us.
Are you now looking to resume your previous strategy, or have you completely changed the way you think?
We invested in logistics and cargo as much as possible and this has doubled our cargo revenue compared with 2019. We are also looking more seriously at partnerships and codeshares.
Airlines that have a reason to exist will survive. Azul now serves more cites in September 2021 than we did in September 2019. We have found that a broader network works better for us than high frequency into a limited number of markets. We want to bring more people into the flying world. Creating that demand is a very different from our competitors. Some 92% of their traffic touches Rio, Sao Paulo, and Brasilia. For us, that triangle represents only 38%. And our fleet mix is different too.
The point is that there is still enormous potential in the Brazilian market. Brazilians travel once every two years on average. We could double that and still be behind Chile and Colombia.
What leadership lessons have you learned from the crisis?
The crisis has confirmed that aviation is a people business. A strong culture really helps airlines to be resilient. We had over 11,000 people happy to help us out. That matters not just internally but externally too. It helps our partners and customers understand us.
And I’ve also got a better understanding of our partners. Some believed in us, some didn’t. I know who I want to do business with in the future. Our entire leadership team was here before the first Azul flight. We were all involved in the initial deals when we founded the airline, and we are still committed to fulfilling our end of the bargain. Hurting Azul in mid-crisis was not good for the long term.
I think we did the right thing. We have more seats available in September 2021 than September 2019 because we had partners and staff that believed in us. The whole process has made us more efficient and will enable us to provide even more value to every stakeholder.
How has e-commerce and the crisis forced you to evolve your cargo business model?
Logistics are tough in Brazil. But Azul serves some 130 cities in Brazil, and we have learned that there is more to distribution than just that triangle of the three main cities.
There has been a real boom in e-commerce. The pandemic has accelerated the trend and we have had years of growth in just 18 months. We have been flying widebodies and we have even converted some of the Embraers because we are carrying primarily smaller packages with iPhones, clothes, sneakers, and the like.
We found opportunities for business and made every aircraft in our fleet available if the business case for a cargo flight could be made. Cargo will be worth about $1.1 billion to us in 2021, from about $500 million in 2019. And we’re expecting double digit growth in 2022 and beyond. And remember, that is with international cargo largely stopped.
We are getting the rewards of our investment in the sector.
What more can the government do to make Brazilian aviation successful?
The Brazilian reality is so different to the United States or Europe. Our resources are not the same and the government has to deal with extremes of poverty. There is not enough money to go around.
Nevertheless, we need a level playing field because we compete in a global industry. We can’t have the cost of capital higher here than in the United States, for example. We must push the government to give us a comparable cost structure. When Azul flies to northeast Brazil, there is a substantial tax on fuel that isn’t applied when we fly to Miami. That doesn’t make sense.
We are boosting the economy by transporting goods and people throughout Brazil. If Brazil was a first world aviation country, we could provide even more value. The more that IATA can get Brazil aligned with global standards the better.
What is your view of the travel restrictions we have seen? What could have been managed better?
The great thing in Brazil has been the vaccine rollout over the past few months. There are enough vaccines available now for all citizens to get double jabbed. There is even enough for booster jabs for the over-65s.
But Brazil has been locked out of the United States and it’s not easy to get to Europe either. International travel has been hurt but domestic travel has benefited from this. Orlando and New York are effectively closed to Brazilians, so they have been exploring their own country. Our national economy is booming as a result.
What needs to be managed now is the visa situation. There is a huge backlog for US visas. Even when the borders open there will be a slow pick-up in US travel because of this.
Will passenger expectations change post-pandemic?
A lot of the changes will be permanent. The digital transformation will accelerate and we’re already seeing 80% of people doing self-check-in. All the digital improvements are good.
Great customer service has always been part of Azul. These digital enhancements combined with a new fleet will only improve matters.
We’re also lucky that in Brazil there is no anti-mask mentality. We have a mask mandate until the end of 2021, which makes life easier in giving customers the service they expect.
How can aviation improve its environmental performance?
Azul will achieve zero carbon emissions by 2045. We are committed to a next generation fleet that will save 25% in carbon emissions per seat. The OEMs need to find the next set of improvements and, of course, all airlines are working on a host of other measures.
We serve 17 destinations in the Amazon. To save it, we must serve it. We need to provide economic opportunities beyond deforestation.
Sustainability also means providing jobs. It means bringing goods and services to people. Generating economic activity will ultimately produce the resources that will help save the Amazon. Remember, the Amazon is the size of Europe. It can’t be policed unless you have extensive resources and aviation is one way to get those resources. Not traveling is not the answer.
But it should also be noted that this is a different point in time for Brazil in aviation and sustainability terms. Other countries’ populations fly a lot more than Brazilians and their economies have benefitted. We shouldn’t necessarily be subject to the same parameters.
What do you see as the biggest challenges and opportunities for the industry as a whole in the years ahead?
There will be more consolidation and larger global partnerships in the future. This is a good thing because the value in aviation has never resided with the airlines. The more we can partner as an industry, across all stakeholders, the more we can provide efficient services for customers, reduce cost, and improve as an industry. That is both the opportunity and challenge ahead.
If you could name one topic that should move higher up the aviation agenda, what would it be and why?
The pressure and burden on airlines have to be reduced. Most airlines enter 2022 with more debt than they have ever had before. For the industry to truly recover we need to repay that debt as quickly as possible. And that means making it possible for airlines to grow and serve demand.
It would spur economic growth. Take somebody in Brazil today who works for Embraer and somebody who sells goods on the beach. Aviation is crucial to both. People need to visit that beach and aviation needs to succeed to keep Embraer going.
Aviation affects everybody. And it can be good for everybody.