Azul Brazilian Airlines is likely to be profitable this year

Brazil’s newest discount airline, Azul Linhas Aereas Brasileiras SA, carried 2.2 million passengers in its first year of operation and is likely to be profitable this year, said David Neeleman, founder and chairman.

Mr. Neeleman, better known for starting JetBlue Airways Corp. a decade ago in the U.S., said in an interview that he believes closely held Azul is the first airline in the world to carry more than two million passengers in its first 12 months.

The carrier, based at the airport in Campinas, a city near Sao Paulo, now operates 14 jetliners serving 16 cities. Four destinations will be added this year, and its fleet will grow to 21 aircraft by the end of 2010 and 33 by 2011, Mr. Neeleman said. Azul flies 118-seat Embraer E-195 jetliners and 106-seat E-190s. Both models are built by Brazil’s Empresa Brasileira de Aeronautica SA.

The new airline flew with nearly 80% of its seats full in 2009, the highest load factor among Brazil’s major airlines, according to data from Brazil’s National Civil Aviation Agency. Azul finished the year with 3.8% of the domestic passenger market, gaining on five-year-old discounter WebJet Linhas Aereas, which had a 4.5% share.

Both airlines pale in comparison with TAM SA and Gol Linhas Aereas Inteligentes SA, which together command 87% of the domestic market, government data indicates. Tam and Gol will continue to be stiff competition, and Brazil’s airport and air-traffic control infrastructure is straining to keep up with increased flight operations.

A year ago, as Azul was preparing for its first flights, Mr. Neeleman complained that the frozen credit markets were making it difficult to finance the fleet. But the company, which has attracted $200 million in startup capital from U.S. and Brazilian investors, got through the squeeze and now the financing pipeline is open again, said the 50-year-old airline entrepreneur.

Mr. Neeleman, who speaks fluent Portuguese and holds both U.S. and Brazilian citizenship, owns 20% of Azul and has 80% voting control. He commutes weekly to Brazil from his home in Connecticut to run the airline with Pedro Janot, a Brazilian retail executive who was named president.

Mr. Neeleman, who founded discounter Morris Air and sold it to Southwest Airlines Co., went on to help found WestJet Airlines Ltd., a Canadian discounter, before starting JetBlue in the late 1990s. He was ousted as chief executive of JetBlue in 2007 and soon began raising money, some of it from JetBlue’s original investors, for Azul.

His newest creation looks a lot like JetBlue, which also flies the E-190 jetliner, and its name, in Portuguese, means “blue.” The Brazilian airline offers low fares, has two-by-two leather seats in all-economy cabins and plans to offer LiveTV entertainment programs on seatback monitors later this year.

Its target market is Brazilians who normally travel by long-distance bus, and those who don’t travel at all. Azul aims to stimulate new demand by offering inexpensive no-connection flights between Brazil’s largest cities. “We believe the market should be three to four times bigger,” in Brazil, based on the size of the population, Mr. Neeleman said.

Azul recently copied JetBlue’s popular all-you-can-travel pass promotion, which allowed purchasers of the pass to travel on as many JetBlue flights as they wanted for a month last fall for $599. Azul sold 6,000 passes of its own at 499 reals each, or $283, Mr. Neeleman said, even though travel on Fridays and Sundays was fenced off. About 80% of the purchasers had never flown on the airline before, and their average trips consisted of seven flights, he said.