Brazilian airline Azul to cut capacity further in third quarter but sees growth after that

Azul on Thursday reported record second-quarter operating revenue of 4.98 billion reais ($960 million), up 0.7% from a year earlier, but core earnings slumped 55.4% to 510.1 million reais as the cost of fuel per liter surged 61.8%.

The company, which emerged from a nine-month-long Chapter 11 process in February and has pledged to shift its focus from expansion to profitability and operational execution, said higher fares helped offset part of the cost increase.

"Was it the end result we wanted? Of course not. Fuel costs increased by nearly 700 million reais during the quarter and we cut capacity. But this was always going to be a transition quarter anyway," Rodgerson said, highlighting operational improvement and higher unit revenue.

Brazilian airline Azul expects to trim capacity again in the third quarter after recent major cuts before returning to growth in the final three months of the year, Chief Executive John Rodgerson said on Thursday.

Azul slashed capacity by an unprecedented 10.6% year-on-year in the second quarter, including a 24.9% reduction in international operations, as the U.S.-Israeli war on Iran disrupted oil flows and sent jet fuel prices sharply higher.

"The peak of the fuel crisis occurred in the second quarter, and at the same time it is typically the weakest quarter of the year," Rodgerson told Reuters. "We did what we believed was right: cut capacity."

The carrier, Brazil's largest by number of cities served, expects to reduce capacity by around 4% in the third quarter before returning to growth from the fourth quarter as it completes a transition to a widebody fleet.

Rodgerson said he remained optimistic about Brazil's aviation market, citing resilient demand.

"The fundamentals in Brazil are very good at the moment, and we believe we're well positioned," he said. "Wars and crises don't last forever."