More than just being the delivery of a new airplane, though, the arrival of Azul’s first A321neo represents a landmark of a process the airline has been undertaking since 2016: the development of its ambitious fleet plan.
From its first flight in 2008, the airline relied solely on the Embraer 190 and 195 to position itself in the Brazilian market until 2011 when the ATR 72 came into play.
Benefitting from the then-empty Campinas/Viracopos Airport as a hub, Azul quickly grew as Brazil’s third-largest carrier in terms of traffic.
Little by little, however, the Embraer fleet started showing its shortcomings. Although having a smaller capacity than the Airbus and Boeing aircraft that its competitors operated, the aircraft lacked efficiency.
This was even more evident on larger flights. Brazil is vast, and Azul found it very difficult to operate longer flights with the Embraer in an efficient way.
That’s why in November 2014, with Brazil on the edge of an abyss that would show the biggest recession in the country since 1929, Azul made a big gamble, ordering 63 Airbus A320neos. The first one arrived in October 2016, starting operations that following December.
The A320neo quickly proved to be much more efficient than the E195. Even though the overall cost per trip of the Airbus is around five percent more than the cost of the Embraer, the cost per seat of the European aircraft is 29 percent lower since the A320 has 56 seats more than the E195, 174 against 118, the cost per seat of the European aircraft is 29 percent lower.
This allows Azul to increase its margins in markets that, during recent years, were matured by the Embraers, at the same time reducing the relative cost.
Abhi Shah, Azul’s Chief Revenue Officer, stated on a conference call, We could not have started Azul with large narrow bodies 10 years ago.
But now we have built a network that has enough feed and enough traffic that can fill Neos and so we are going to get the double benefit of improved fuel burn of the A320neo and more economies of scale.
This can be seen by the current routes served by Azul’s A320neos. The aircraft mostly connects high-density routes from Azul’s strongest markets to major Brazilian cities, as well as connects the carrier’s hubs — Viracopos, Confins and Recife — plus focus cities — Belem, Cuiaba, Curitiba, Goiania and Porto Alegre — to each other.
Apart from these, a big chunk of the routes connects the airline’s hubs — Viracopos/Campinas and Belo Horizonte/Confins — to cities in the north and northeastern regions of Brazil.
Before the Airbus, the airline could not connect these cities with as much efficiency as its competitors. The better unit cost brought by the performance of the A320neo on longer jaunts allow the airline to push further its capacity within these sectors.
The hub-and-spoke system is an important aspect of Azul’s network, so once these routes are connected with a stronger revenue and lower unit costs, all the other flights benefit from that in a kind of a chain reaction.
On the investors call for the third quarter of 2018, Abhi Shah stated that the A320 is driving great connectivity throughout our network and that is helping the smaller routes, the E-Jet routes, the ATR routes.
Another important aspect of Azul’s new fleet seat cost efficiency is that it makes the airline able to be in a good position when competing directly against LATAM and GOL, with the best example of in Guarulhos.
Before the introduction of the A320neo, Azul had a very small presence at Brazil’s largest airport. From August 2016 to August 2019, the revenue passenger kilometers (RPK ) grew from 131.1 million to 426.7 million, an increase of 225.4 percent.
Meanwhile, the domestic RPKs of Azul’s network increased 61.7 percent from 3Q 2016 to 4Q 2019. This means Azul grew four times more in Guarulhos than it has grown in the whole domestic market during the same period.
Azul’s CEO, John Rodgerson, previously stated that it is important to note that we have put some A320s in the Guarulhos airport because we have the most fuel-efficient aircraft in Latin America today, and with the lowest unit cost and lowest trip cost and its range.
So obviously in a more competitive market you are going to put your best-performing asset.
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