Shares of Brazilian airline Azul (NYSE: AZUL) were up 4.4% in early trading today. The move comes in line with a generally positive day for airline stocks. The sector was sold off heavily in the last week as investors stress over high oil prices crimping profit margins, while ongoing labor shortages have caused flight cancellations. In addition, the tightening of COVID-19 restrictions in China, during a period when they were supposed to be loosening, reminded investors of the ongoing threat to travel from the pandemic.
If that wasn’t enough to concern investors, inflation data in the U.S. and around the globe are causing higher interest rates and the fear that the global economy could slow. Of course, Azul won’t be immune from these pressures as Brazil is a significant trading partner of the U.S. and China.
The up move today can be seen as part of the typical push-me-pull-you trading debate in a rising rate environment. However, it’s unlikely to be over soon, so look for more share price volatility.
If you believe the global economy will avoid a recession, then there’s a strong case for buying Azul stock. After all, Azul and other airlines continue to raise ticket prices to offset rising costs in a robust demand environment. Indeed, the airline recently released its May 2022 traffic figures. In terms of revenue passenger kilometers (RPK), domestic traffic was up 60% compared to May 2021 and even up 30% over May 2019 (the last year before the pandemic hit).
In the recent traffic data release, CEO John Rodgerson said, “we continue to expect record revenues in the second quarter of 2022.” Clearly, Azul is trading in a positive environment right now. However, the fears expressed in the opening above won’t realize, and Azul can continue to enjoy a multi-year recovery in air traffic.