Azul Brazillian Airlines’ Demand-Stimulating Business Model

In 2006, American business magnate and founder of JetBlue, David Neeleman, decided to launch his latest project, a low-cost airline that promised to change Brazil’s airline industry for the better, by expanding service and introducing new, affordable air service to regions of the country that had never experienced this kind of connectivity before. Unlike many former low-cost airlines, which had previously thrived by operating classic business models in which they streamlined operational costs to the point that they could offer tickets that came at a steep discount to those offered by legacy airlines, Neeleman had a bold vision and a novel business model for the young Brazilian airline.

Photo: Alexandre Rotenberg | Shutterstock

This airline, which would be officially named Azul Linhas Aereas
but colloquially known as just Azul, aimed to avoid competing as much as possible with Brazil’s legacy carriers and other full-service airlines. Instead, Neeleman planned to launch a carrier that would enter new markets that were currently unserved, choosing to operate nonstop flights between these destinations in an attempt to stimulate passenger demand to the point of profitability, a business model that had been mostly untested at the time outside certain US and European markets.

What exactly is a demand-stimulating business model?

Traditionally, low-cost carriers and other non-network airlines operate flights only on routes where they were able to determine that enough market demand existed to support a new nonstop frequency. For example, an airline might choose to begin flying from Rio de Janeiro’s Galeao International Airport (GIG) to San Carlos de Bariloche Airport (BRC) in South America if it determined that enough passengers were already flying between these two destinations on stopping services to warrant a new nonstop frequency.

For example, if LATAM, a legacy airline that operates most routes to and from Brazil’s largest cities, noticed that around 200 daily passengers were flying from Rio de Janeiro to Bariloche, the ski capital of South America, on connecting itineraries, they would likely have a strong argument to make regarding the potential success of a nonstop service between the two cities. Often, airlines will use data from Google Flights, Kayak, Expedia, or other websites to identify whether enough passenger demand exists between certain city pairs to justify the launch of a new nonstop frequency.

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Azul Linhas Aereas

IATA/ICAO Code

AD/AZU

Hub(s)

Belo Horizonte International Airport
, Sao Paulo Viracopos International Airport
, Recife/Guararapes International Airport

Year Founded

2008

CEO

John Rodgerson

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Azul’s philosophy differs in one major way

The difference between the business model of Azul and traditional airlines is that the carrier does not rely on pre-existing air travel demand to determine whether to open a route, something that other network planning departments within the industry would likely consider too risky. Azul attempts to stimulate passenger demand by operating affordable and convenient flights that allow passengers to travel between two destinations they otherwise would not be able to.

Photo: Felipegsb | Shutterstock

There are two reasons why this business model might work, the first being the price decrease that would be associated with traveling between two destinations. Additionally, some passengers may choose to fly to a given destination due to the convenience of nonstop flights.

For example, legacy airlines might choose to stay away from operating flights between Belo Horizonte International Airport (CNF) and Orlando International Airport (MCO), as not enough passengers fly on connecting itineraries between the two cities to justify operating a nonstop flight. The lack of demand would likely result in such a flight returning a loss, even if operated with the smallest aircraft in an airline’s fleet.

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Azul, however, operates rather differently. The airline does operate this relatively low-demand route, and it is the only carrier to do so. Before the airline launched this service, the only way to get between these two cities was by taking a connecting itinerary that likely ran through some other Brazilian city or maybe even Miami International Airport (MIA).

When deciding to launch this service, Azul determined that by operating this new nonstop affordable flight, they would be able to generate enough demand to achieve profitable operations between the two cities. For starters, the company believed that there would be enough passengers who would choose to fly between these two cities who otherwise would not due to the decrease in cost that Azul would be able to provide.

Photo: Guilherme Amancio Moreno | Shutterstock

Not only are connecting itineraries from legacy carriers like LATAM more expensive but they are also significantly more inconvenient. For those traveling to Brazil from Orlando, a different destination with a nonstop flight might have made more sense due to the increased travel convenience before Azul introduced this new direct service.

As a result, Azul’s demand-stimulating business model was unique at the time and was among the first of its kind in the Latin American market. Over the years, the carrier has expanded its operations to now serve several nonstop routes beyond Brazil, the rest of South America, the Caribbean, and the United States, as it continues to innovate with this unique network strategy.

The airline has structured not just its network but also its entire business around this model

A successful route-stimulating business model involves quite a bit more than just having a route map consisting of flights between destinations not already served by nonstop services. There are several other moves that an airline must take to center its entire operational plan around this kind of business model.

Photo: Lukas Souza | Simple Flying

For starters, the airline needs to create a network of operating bases that cater towards underserved routes, something which Azul has done a textbook job of doing. The carrier has focused on operating out of smaller markets, overlooking the largest airports in Brazil at Rio de Janeiro (GIG) and São Paulo (GRU). Instead, the airline operates out of the following three facilities:

• Belo Horizonte International Airport (CNF)
• Gilberto Freyre International Airport (REC) in Recife
• Viracopos International Airport (VCP) in Campinas

The airline has to consider several factors when determining how to operate these demand-stimulating routes, and it has to carefully consider what kinds of airports would best serve this kind of model. In a 2022 article in the Journal of Air Transport Management, Bruno F. Oliviera and Alessandro V. M. Oliviera wrote as follows regarding the unique model:

“We found that Azul (before the merger) considered factors such as network economies, population size, and flights from a secondary airport as positive entry drivers. In contrast, airport slot restrictions constitute an entry barrier for the carrier.”

When operating a demand-stimulating business model, Azul needs the ability to rapidly adjust its route network to change routes based on performance. As the airline relies on unproven routes and its demand projections, there are often occurrences in which the airline needs to be able to quickly change its routes and flight schedules, meaning that slot restrictions at large airports can pose a major barrier.

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Furthermore, Azul needs the ability to serve all kinds of destinations with a dynamic fleet. As a result, the airline operates a diverse range of aircraft, from small regional turboprops to massive intercontinental widebodies. Additional details regarding the airline’s fleet are available in the table below:

Other airlines have also adopted demand-stimulating business models

The demand-stimulating business model has certainly caught on, with other airlines across the globe attempting to find profitable niches by operating nonstop flights between underserved markets. For starters, David Neeleman himself would go on to found another airline that specializes in operating demand-stimulating flights.

Photo: Matheus Obst | Shutterstock

Utah-based Breeze Airways, which was launched in 2018 and started operating commercial flights in 2021, also operates this kind of business model. The similarities between Breeze and Azul are rather extensive, with the airline operating out of smaller airports like Providence’s T. F. Green International Airport (PVD), which, according to Forbes, has recently become the airline’s largest operating base.

The airline also prides itself on operating hub-busting flights which it uses to connect underserved communities, much like Azul does. Furthermore, the airline also appears on an Azul-esque pathway, with Neeleman himself indicating that long-haul flights could be coming shortly for the carrier.

Photo: Guilherme Amancio Moreno | Shutterstock

In the long-haul market, there are a few other carriers that also operate a lot like Neeleman’s Azul. German airline Condor once operated a purely leisure-oriented model but has since expanded into more non-traditional routes, such as flying from Germany to destinations like Anchorage International Airport (ANC) and San Antonio International Airport.

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Another carrier to fall into this niche is TUI, which has historically operated an end-to-end integrated tour operator business model. The airline has begun to expand its route network to include many demand-stimulating flights to non-traditional destinations.