Azul, Gol shares jump as Brazil airlines reveal codeshare deal

LATAM Airlines

24/05/2024 17:09

By Gabriel Araujo
       SAO PAULO, May 24 (Reuters) - Shares in Brazilian
airlines Azul  AZUL4.SA  and Gol  GOLL4.SA  soared on Friday
after they announced a codeshare agreement, connecting their
networks and frequent flyer programs in a move that reignited
speculation about a potential merger.
    The deal covers all domestic routes operated by one carrier
but not the other, the companies said in a joint statement. The
deal is expected to create some 2,700 travel routes with a
single connection.
    Azul shares jumped over 10% on the announcement, while
shares of Gol rose as much as 19%.
    Gol and Azul are respectively Brazil's second and
third-largest airlines by revenue passenger kilometer, a gauge
of traffic. Each have around 30% of domestic market share,
behind LATAM's  LTM.SN  40%, according data from regulator ANAC.
    Gol has been losing ground since it filed for bankruptcy
protection in the United States earlier this year, after
struggling with heavy debt and delayed deliveries from
planemaker Boeing  BA.N .
    The codeshare agreement comes after media reports that Azul
was mulling an acquisition of Gol, which was Brazil's leading
airline until 2021.
    Azul has said in recent months it was watching the market
for potential partnerships, and that it broadly favored
consolidation to strengthen carriers.
    Analysts at Itau BBA said the codeshare agreement may unlock
additional revenue for Azul, while increasing investors'
perception of a possible merger.
    "Given that Azul flies alone on more than 80% of its routes,
combining their businesses could unlock substantial revenue
synergies on top of the cost savings for the combined company,"
the analysts said in a note to clients.
    Starting at the end of June, the codeshare agreement does
not require antitrust approval. 
    Brazil's Ports and Airports Minister Silvio Costa Filho said
he expects the codeshare agreement between Gol and Azul to
expand connectivity and offer more flight options in Brazil.
    "The ministry and ANAC will be monitoring any consequences
of the agreement, always seeking better services and conditions
for the Brazilian consumer," Costa Filho said on social media.  
 
    The deal also links Azul and Gol's frequent flyer programs,
allowing travelers to earn points in their preferred program.
    Azul had a codeshare deal with LATAM in 2020, when the
coronavirus pandemic hit the air travel industry, but it fell
apart the following year as Azul unsuccessfully bid to combine
with the Chile-based carrier.
    Local airlines have struggled to stabilize their businesses
since the pandemic. Along with Gol's Chapter 11 filing, LATAM
came out of bankruptcy court with an $8 billion reorganization
plan in 2022. Azul restructured its debt out of court last year.
    Analysts at Genial Investimentos said they believe the deal
reflects Gol's challenge to keep up with demand at the moment
and should benefit Azul with enhanced passenger flow.
    Brazilian airlines have seen stronger demand this year,
leading Azul to raise in March its estimate for core earnings.

 (Reporting by Gabriel Araujo
Additional reporting by Paula Arend Laier
Editing by Brad Haynes and Diane Craft)
 ((Gabriel.Araujo2@thomsonreuters.com; +55 11 5047-3352;))