Airfreight in Brazil Seen as Way to Overcome Crime, Poor Infrastructure
Azul SA, Brazil’s newest airline, thinks it can help solve one of the nation’s oldest problems.
The carrier founded by serial airline entrepreneur David Neeleman is setting out to tackle Brazil’s logistics bottlenecks, a major drag on Latin America’s largest economy.
Unpaved roads, highway robberies and a patchwork rail network in a country the size of the continental United States are just some of the reasons Brazil’s infrastructure is consistently ranked so poorly by the World Bank.
Azul only gets 3-4% of its annual revenue from cargo now, but sales are growing fast. The company saw revenue from shipments in the cargo hold of passenger planes jump by 61% in the first quarter from a year earlier. And that was before a 10-day truckers strike brought Brazil to a standstill last month.
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Azul plans to have its first two Boeing 737-400 cargo planes in the air by the end of the year, CEO John Rodgerson said. It also is planning to expand its network of 200 cargo drop-off locations and is awaiting regulatory approval for a first-of-its-kind delivery deal with the national postal service, he said.
“Brazil has a huge logistics problem,” Rodgerson said in an interview at the company’s headquarters in a Sao Paulo suburb.
“A lot of people think, ‘OK, I’m going to send stuff on the road because it’s cheaper.’ Is it? You need insurance, and you don’t have the confidence your product is actually going to arrive. Airports are one of the safest places in the world.”
Azul founder Neeleman also started JetBlue Airways Corp. and is said to be raising funds for a new U.S. carrier, according to Airline Weekly.
Struggling Stock
Over at its passenger business, Azul expects its available seat-kilometers, an industry measure of capacity, to rise 17% this year as it flies 25 million people and boosts employee headcount by 1,000, or almost 10%, Rodgerson said.
The airline’s stock has struggled in recent months, losing more than 40% since its record high in April. Rising oil prices and a stronger dollar are largely to blame, prompting Azul to speed up an aircraft-renewal plan to boost fuel efficiency of its fleet.
Meanwhile, Azul’s two new cargo jets — and especially that post office deal — will put it in a prime spot to take advantage as the world’s largest online retailer sets its sites on Brazil. After several years of selling just books in Brazil, Amazon.com last year launched an electronics and appliances marketplace.
The retail giant’s expansion in South America’s biggest nation has been uncharacteristically slow, and industry watchers say that’s most likely because of Brazil’s unreliable and costly transportation infrastructure. Azul’s CEO said the firm is in talks for additional cargo deals with several companies but declined to say if Amazon was one of them.
By Air or Land?
An increasing number of companies are deciding to fly higher-value goods rather than take their chances by trucking items hundreds or even thousands of kilometers on potholed and robbery-prone roads, he said. A truckers strike last month over rising diesel prices illustrated just how badly needed alternative shipping methods are.
The protest, which choked roadways and paralyzed the flow of goods, has prompted economists to lower their forecasts for growth this year. Brazil’s gross domestic product now is expected to expand less than 2%; just a few months ago, economists expected 3%.
What’s more, President Michel Temer’s efforts to appease truckers by pledging diesel subsidies will only add to the country’s already dire fiscal situation — while throwing a wrench in the competitiveness of air carriers. Airlines are among companies who saw payroll taxes rise to help fill the fiscal gap created by the diesel subsidies.
That’s in addition to losses related to the strike as dozens of airports around the country ran out of jet fuel. The three biggest airlines — Gol Linhas Aereas Inteligentes SA, Latam Airlines Group SA and Azul — have estimated that the strike cost about $36 million.
“The situation now is more challenging,” said Rodgerson, “but it doesn’t change what we want to do.”
