A closer look at Azul’s decision to expand their network and what it implies

Last month, Azul announced their intention to operate A330s and A350s to capture long-haul, international market share. While the move may have come as a surprise for many outside the aviation industry, there is plenty of logic as to why long-haul flights to the US make sense for Azul. To start, it is worth noting that in spite a lot of competition already in this market from LATAM, American, Delta and United, load factors are consistently high and yields are strong showing that underserved routes are in need of capacity increase. Another key consideration for Azul, would have been the Brazilian-US “Open Skies” agreement, which deregulates the market starting in 2015.

Also, it is important to consider the growth plans at their Campinas hub (VCP) – with a new dedicated terminal under construction and new runway planned. By acting now Azul is positioning itself to be the dominant airline in what will fast become São Paulo’s most significant airport.

Additionally, international network expansion allow airlines to better balance resources during the business cycle, while gaining access to a Dollar revenue streams that is useful for paying expenses such as fuel and aircraft lease.

So what can the Brazilian and Latin American markets learn from this? In my view, first, there is clearly an undersupply of seats from Latin American carriers to serve long haul destinations. Foreign airlines have already identified Latin America opportunities and have grown their capacity much more rapidly, in particular to Brazil. Latin American carriers should better protect their regional assets by either looking at more new long haul route openings, or by upsizing aircraft to compete directly with European and North American competitors. Second, in order to compete, airlines need to select the right aircraft for their long haul network going forward, with an eye toward attracting revenue through a superior interior cabin and reducing risk by flying more fuel and cost efficient aircraft.

With more than 30 years in the aviation industry, Rafael Alonso is the President of Airbus Latin America and the Caribbean region, responsible for all Airbus commercial activities and customer relations in more than 40 countries.