I. Based on Michael Porter's discussion of the characteristics of an effective strategy, does Azul Linhas Aereas Brasileiras have a good growth strategy? Explain.
2. To what extent is Azul Linhas Aereas Brasileiras following the five steps of the strategic management process?
3. Conduct an environmental scan or SWOT analysis of Azul Linhas Aereas Brasileiras's current reality and recommend whether the company's current strategy is poised to succeed.
4. To what extent will Porter's five competitive forces help or hurt Azul Linhas Aereas Brasileiras's growth strategy? Discuss.
5. What is the greatest take away from this case in terms of strategic management?
David Neeleman is in a good mood. Fresh off a flight from Sao Paulo and gearing up for a round of TV interviews, Neeleman, 50, agrees to meet over lunch at a Cosi sandwich outlet in Greenwich, Connecticut, near his home in New Canaan... .
Neeleman has a happy story to tell: Investment firm TPG has just bought a $30 million stake in his Brazilian airline Azul Linhas Aereas Brasileiras, and Azul has set an industry record, carrying 2.2 million customers in its first year.
Azul's early success is all the more sweet for Neeleman given the bitterness he felt after his ouster from JetBlue Airways .... After dabbling with the idea of starting an ethanol company in California, Neeleman went to check out a Brazilian airline called BRA Transports Aeros as a favor to some investor friends." It was the furthest thing from an airline I've ever seen," says Neeleman." I thought, 'If these guys will invest $150 million in this, it must be worth looking around.' " (BRA suspended operations in late 2007.) Neeleman quickly raised $150 million to launch his own start-up airline. Then, just as he was finalizing route plans and securing government clearance to fly, the global economy crashed . With its financing and plane orders locked in. he pushed ahead with his launch in December 2008. Remarkably,
Azul-"blue" in Portuguese-is on track to make a profit on 2010.Neeleman, the chairman, owns about 15% and controls the voting shares. Azul's long-term success will depend in part on how well Neeleman has learned from his mistakes. One challenge, says Vaughn Cordle, managing partner of Washington-based research firm Airline Forecasts, will be curbing his ambition." The greatest threat is if they let Azul grow above a sustainable rate," says Cordle." That's what happened at JetBlue.''
Neeleman acknowledges the Brazilian market's many challenges, from taxes to infrastructure, and insists he's keeping his expectations in check. But in the same breath he talks about the opportunity. He wants to revolutionize the Brazilian market by bringing air travel to the masses. And he wants redemption. Brazil was a logical place for Neeleman to go. He spent his first five years there, the son of a reporter for United Press International who had first visited the country as a Mormon missionary. At 19, Neeleman returned to the country of his birth to do his own two-year missionary stint. ... His time in Brazil left him with two distinctive advantages: fluency in Portuguese and dual citizenship, which allowed him to get around Brazil's 20% cap on foreign ownership of airlines. Neeleman's instincts told him Brazil was ripe for a new aviation venture. Only a fraction of its 19 2 million people currently fly; per capita, Americans fly about eight times more, according to Airports Council International."
We're not even close to the level of air travel in mature economies," says Libano Miranda Barroso, CEO of Tam, Brazil's largest airline, with a 46% market share. "Even our projection for 2027 is equivalent to what the U.S. used to have in the 1970s." Neeleman is determined to change that by creating a new market of fliers. His target is the 52% of Brazilian households that earn between I, 064 and 4,591 reais a month (about $594 to $2,565) making up Brazil's middle class. They are a fast-growing group that traditionally travels by bus. Many carriers have tried to tap this population, only to be thwarted by strained airports and high costs. As Renato Pasco witch, executive director of domestic Brazilian carrier Ocean Air, puts it, fliers "often can't afford to take a taxi to the airport. So how do you get these passengers to board your plane, even if you are offering dirt-cheap tickets?" Neeleman's reply: "We give them a free ride to the airport." Complementary transportation is all the more crucial because Azul, like Southwest and Ryanair, flies nonstop between secondary airports. Its main hub is Viracopos/Campinas International Airport in Campinas, an attractive and well-run city about 50 miles north of Sao Paulo. Campinas has about 2.6 million people, and some 30 million live within a 120-mile radius. Azul offers bus service from pickup points in seven cities, with about 50 bus trips a day.
But the real draw is the low fares. Tickets, if purchased in advance, run about the same as a bus trip. Traveling from Sao Paulo to Salvador by bus, for example, costs about $150 each way and takes 23 hours; on Azul, the lowest one-way fare is just over $100. Christina Maisonnette of Rio de Janeiro had been planning to drive to Natal, a coastal town, before opting to fly. "I hope they survive," she says of Azul. "I want to be able to fly more often."