Fitch Publishes Brazilian Airlines Dashboard

NEW YORK--(BUSINESS WIRE)-- Link to Fitch Ratings' Report: Brazilian Airlines Dashboardhttp://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=866161

Fitch Ratings has published the Brazilian Airlines Dashboard - First half 2015.

Fitch expects Brazilian Airlines' operational margins to remain under pressure in 2015 while facing a business environment characterized by single digit growth in demand, low business travel activity, weak yield atmosphere; and benefits from lower international fuel price being partially offset by devaluation of the Brazilian real against the US dollar. The main players are trying to counterbalance or minimize the negative impact of these factors by focusing on capacity management and cost control.

Although the impact of the current business environment on each company's credit profile will depend on their specific cost and debt structure, revenue diversification and yield/capacity management, Fitch expects weakness in the revenue side to surpass benefits from reduced costs in general for the industry in 2015. Incorporating seasonality, the second quarter of the year is expected to be the worst. Operating margins and financial leverage are generally expected to deteriorate during the first half of 2015, while potential positive developments in the macroeconomic scenario, fuel price, exchange rate and capacity management could result in stabilization during the second half of the year. Liquidity is expected to remain manageable during 2015.

Brazilian airlines continued facing single-digit growth in demand, low business travel activity, and a weak yield environment during 2015. Brazilian domestic traffic, measured as revenue passenger kilometers (RPK), is expected to grow moderately -- in the single-digit range -- in 2015. Business travel demand remains weak, driven by macroeconomic conditions. The business segment represents approximately 70% of total domestic transported passengers. Since second-half 2014 yields, measured as BRL paid per kilometer flown, have declined, driven primarily by weak business travel demand, reflecting lower economic activity. Positively, since 2014, Brazil's domestic and international segments have maintained load factors around 80%, reflecting better asset utilization compared with prior years. Better load factors are partially offsetting lower yields.

Depreciated FX is limiting the benefits of lower fuel price. Cost control remains one of the major challenges for the industry with trends in the exchange rate and international fuel costs being key components. Approximately 60% of total costs for the industry are U.S.- dollar denominated, with fuel being a large component. The Brazilian real has weakened versus the U.S. dollar during the first four months of 2015, while international fuel prices have declined. This has resulted in a fall in fuel costs per liter in local currency, but by less than the fall in international fuel prices.

Moderate capacity increase is expected in 2015. Dominant players: GOL and TAM, are expected to maintain existing capacity in the domestic segment in 2015, while smaller player AZUL is targeting downward-revised single-digit capacity growth for this year. Fitch expects the Brazilian domestic segment's consolidated capacity to reach low-single-digit growth in 2015. Despite the increase in market share achieved by smaller players AZUL and Avianca in 2013-2014, market position in the domestic market is not expected to change materially in 2015 with TAM and GOL keeping market shares of around 35% to 37%.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

-- 'Airlines: Ratings Navigator Companion' (March 9, 2015).

-- LATAM Airlines Group S.A. - Ratings Navigator (April 30, 2015)

-- GOL Linhas Aereas Inteligentes S.A. - Ratings Navigator (April 30, 2015)

-- Avianca Holdings S.A. - Ratings Navigator (May 1, 2015)

Applicable Criteria and Related Research:

Avianca Holdings S.A. - Ratings Navigatorhttp://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=865507

GOL Linhas Aereas Inteligentes S.A. - Ratings Navigatorhttp://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=865505

Airlines: Ratings Navigator Companionhttp://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=861803

LATAM Airlines Group S.A. - Ratings Navigatorhttp://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=865506

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View source version on businesswire.com: http://www.businesswire.com/news/home/20150519007136/en/

Fitch Ratings, Inc.
Jose Vertiz, +1-212-908-0641
Director
33 Whitehall St.
New York, NY 10004
or
Media Relations, New York
Elizabeth Fogerty, +1-212-908-0526
[email protected]

Source: Fitch Ratings

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