Azul SA’s quest for an alliance outside Brazil to win more passengers makes United Continental Holdings Inc. the best possible partner, according to analysts at Raymond James and Imperial Capital.
“It’s a good idea that makes a lot of sense from both sides,” said Savanthi Syth, an analyst from Raymond James Financial Inc. in St. Petersburg, Florida. “There could be a spectrum of opportunity.”
Azul and Chicago-based United currently have an arrangement that lets Brazil’s third-largest airline provide connecting flights in its home market and allows United fliers to earn reward miles on Azul. What they lack are the stronger overseas ties enjoyed by Azul’s Brazilian rivals so the two companies could boost traffic, offer more destinations, share revenue and reduce costs.
“The world of commercial aviation is globalizing,” said Gianfranco Beting, director of brand, product and communication at Azul. “Alliances are always being sought out, signed and built, and Azul is in this game. I don’t deny that Azul has spoken to United.”
A strong accord with a foreign airline could be a “natural step” for Azul, Beting said, declining to provide details of its contacts with prospective partners.
Mary Clark, a United spokeswoman, declined to comment on any additional partnerships or an equity stake in Azul. United, the world’s second-largest airline is reviewing partnership opportunities with Avianca Brasil, she said.
If United agreed to take a stake in Azul, it could help the Baueri, Brazil-based carrier pay off some of the private-equity firms that invested in the company since it started operating in 2008, Syth said. Azul has postponed an initial public offering three times and is awaiting Brazil’s planned disbursement of subsidies for regional flights.
Azul, created by JetBlue Airways Corp. founder David Neeleman, is Brazil’s only carrier that doesn’t either belong to one of the global airline alliances or benefit from a broad partnership with a U.S. airline. Such global groups offer greater benefits than United and Azul’s current accord, including joint fuel purchasing and pooling activities like ground handling and sharing executive lounges.
American Airlines Group Inc. is linked to Latam Airlines Group SA subsidiary Tam through the Oneworld alliance and Delta Air Lines Inc. has a 2.9 percent stake in Gol Linhas Aereas Inteligentes SA. Avianca Brasil is joining the Star Alliance that also includes United.
“Brazil is probably one of the most attractive countries in terms of airlines to go to or to provide connectivity,” said Bernardo Velez, an analyst at brokerage Corporativo GBM SAB in Mexico City.
Velez sees Azul’s recent purchase of new planes as a signal that it may want to broaden its international offerings and pair them with a U.S. airline with strong connectivity. An alliance with JetBlue might also make sense because of the “close relationship” of the management teams, he said.
United could also benefit from more access to Brazilian passengers, Syth said. It gets less than half as much revenue from Latin America compared with American, which has the most sales in the region among U.S. peers, according to data compiled by Bloomberg.
“United is probably looking to have more of a presence in South America,” said Bob McAdoo, an analyst with Imperial Capital LLC in Los Angeles. “Look at the number of places that come non-stop into Viracopos -- a United flight into there could serve a huge number of destinations.”
Azul’s hub at Viracopos airport in Campinas, about 93 kilometers (58 miles) from Sao Paulo city, serves 50 destinations directly.
United has been stepping up growth in Latin America. First-quarter Latin America seating capacity rose 11 percent from a year earlier, according to the company’s latest report. Most of that increase is attributed to new flights to Panama City and Santiago, as well as Latin American beach markets, said Clark, the spokeswoman.