CASE STUDY: AZUL LINHAS AÉREAS

Real-Time Flight Tracking at Azul Linhas Aéreas

Felipe Starling, IT Manager Flight Ops Solution, Azul Linhas Aéreas outlines a 100% global, real-time aircraft flight tracking project

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hile this article is ultimately about flight tracking, an important and pertinent topic today, readers will need a context in which to put the flight tracking information. So, perhaps the first thing I should do is to explain something about the airline that is the subject of Wthis article.

AZUL LINHAS AÉREAS Azul at a Glance We believe we are the fastest-growing, most profitable and best positioned airline in Brazil

2008 2012 2014 2015 2016 2017

Maiden Acquisition of Next-Gen Partnership with United Partnership with HNA Azul IPO (US and Brazil) Flight TRIP Airlines Aircrafts US$ 100M investment US$ 450M investment NYSE: AZUL 15 Dec 64 destinations 63 A320neo for a 5% economic stake for 24% economic stake B3: AZUL4 33 ERJ-E2 in Azul in Azul Lisbon VCP-SSA Orlando Ft. Lauderdale/Miami

Cayenne

Boa Vista

• #1 in destinations served (over 100) Macapá

Belém Manaus Santarém São Luís Parnaíba Tabatinga Parintins Altamira Jericoacoara Tefé Fortaleza Teresina Fernando Marabá Imperatriz de Noronha • #1 on 71% of routes served Carajás Natal Juazeiro do Norte João Pessoa Porto Velho Campina Grande Alta Floresta Petrolina Recife Palmas Ji-Paraná Sinop Paulo Afonso Maceió Cacoal Sorriso Vilhena Barreiras Aracaju • #1 in departures (~one third of departures Lençóis Fiero de Santana Salvador Cuiabá Barra do Valença in the country) Garças Brasília Vitória da Conquista Ilhéus Rondonópolis Goiânia Montes Claros Rio Verde Caldas Novas Governador Porto Seguro Valadares Corumbá Uberlândia Araxá Teixeira de Freitas Uberaba Ipatinga Positive Fundamentals Driving the Brazilian Aviation Market Campo Grande Divinópolis Três Lagoas S. J. do Rio Preto Belo Horizonte (Confins) Bonito Araçatuba Varginha • #1 in on-time performance in Brazil 2017 (OAG) Ribeirão Preto Vitória Presidente Prudente Zona da Mata Dourados Marília Campinas Campos dos Goytacazes Growth in the Brazilian middle class supported by rising per capita income, leading to more Londrina Bauru Cabo Frio Maringá São Paulo Rio de Janeiro São Paulo (Guaruhos) (Santos Dumont / Galeão) Cascavel (Congonhas) passengers and flights per capita in Brazil Foz do Iguaçu Ponta Grossa Curitiba Lages Chapecó Joinville Passo Fundo Navegantes Santo Angelo Florianópolis • #1 in customer satisfaction Uruguaiana Caxias do Sul Jaguaruna Brazil Domestic Passengers by Year Santa Maria Porto Alegre Domestic Flights Per Capita Pelotas (in millions) Hub New destination Source: Azul, Innovata, OAG and Melhores Destinos Punta Del Este New international routes (announced) Córdoba Montevidéu Buenos Aires Rosario Bariloche

131 FIGURE 1 Azul represents 50% 2,2 of pax growth since From commencing operations in 2008 (figure 1)and now ten years old, Azul has 2007 grown organically and by acquisition. In 2012 Azul acquired Trip Airlines which 89 was, at the time, the largest South American airline in terms of number of 21 destinations. 2013 saw Azul starting a program to introduce Next-Gen aircraft 1,1 across the fleet with orders placed for 63 Airbus A320neos and 33 Embraer 47 ERJ-E2 second generation. Partnerships were established in 2015 and 2016 with 0,6 68 0,5 0,5 United Airlines in the USA and HNA in China. 2017 saw the airline’s IPO being 0,3 listed on both the New York Stock Exchange as well as in Brazil. As things stand today, Azul serves more than 100 destinations and is the number one operator 2007 2016 2021E Brazil Brazil Chile Colombia US US 2015 on 71% of the routes it serves as well as being number one in departures with 2007 2015 2015 2015 1960´s one third of departures in Brazil. Azul is also number one in Brazil for on-time Source: Azul, IATA, CEBR, ABEAR and IBGE performance and number one for customer satisfaction. FIGURE 2 Looking more widely at the Brazilian aviation market (figure 2), in the period That’s all against a background of the number of domestic flights per capita in 2007 to 2016, the market doubled with Azul being responsible for half of that Brazil being pretty low compared to a comparable South American market such growth. as Colombia or a mature market such as the USA. The inference is that there is a

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great deal of opportunity to expand and exploit that market. That said,, Azul Out of the 98 cities that Azul serves in Brazil, 61 have populations in excess of 1 already has a presence in a lot of cities in Brazil (figure 3 — places marked in blue). million people and, also of the cities Azul serves, the airline is number one in 68 Market and Route Leadership of them. All that is achieved with a fleet of mixed aircraft types. Azul operates 34 Azul is strongly positioned in Brazil, with strong presence in underserved markets… ATRs, 70 Embraer E-Jets and 8 A320neos which will rise to 35 by 2020 as aircraft on order, see above, are delivered. These are appropriately sized aircraft Most Relevant Airline by City Azul Route Position (September 2017) (Domestic, September 2017) for the Brazilian market and fit well with Azul’s process of opening a market with an ATR service, then developing that market to the point where it will warrant Domestic Population Cities Cities in #1 Cities Where #1* Served (million) the use of the larger E-RJ aircraft and, hopefully, eventually, the A320neo. There are also some small cities in Brazil, a huge country, that will only ever in the 98 foreseeable future justify the ATR aircraft. So, as you can see, the size of aircraft is really important in this market. Also, the ATRs are usually used on routes with

68 an average stage length of under 500km while the E-Jets average stage length 61 52 is nearer 800km while the A320neo fleet serves routes with an average stage 44 41 length of nearly 1,500km. The next generation aircraft have some financial advantage over the Embraer 14 10 e-95 that is currently in the fleet and Azul expects the CASK (Cost per Available 5 Seat Kilometer) to reduce as the next generation aircraft enter service. In fact, we Azul Gol TAM Azul Gol TAM Azul Gol TAM • Strong penetration in underserved markets already have achieved a 29% CASK reduction using the A320neo. What that means • Hubs located in Campinas (VCP) and Belo Horizonte (CNF), two of the largest airports and metropolitan areas in is that all the 56 seats colored yellow in the seating plan in figure 4 overleaf, and the country Azul Gol LATAM additional to the seating available on the E-RJ are, literally, at no extra cost. Source: Azul, ANAC and Companies * Considers leadership by number of departures. Excludes cities in which one carrier has less than a 5% advantage Also, because Azul has a strong position in Brazil and significant market FIGURE 3 penetration, there are 31 cities that Azul serves with international connections, two

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“…a lot of work has been invested by ICAO (International Civil Aviation Organization) to generate a Global Aeronautical Distress & Safety System (GADSS) with ‘Aircraft Tracking’, ICAO Annex 6.”

Next Gen Aircraft: Key Driver of Margin Expansion Superior Service Replacing older generation aircraft with new generation aircraft to further strengthen Azul’s margins going Azul was recognized as the third best airline in the world by TripAdvisor in 2017, has forward attained high customer satisfaction and wide recognition by industry specialists

Domestic Product & Service Awards E2 and A320Neo CASK Advantage Next Generation Aircraft Expected Percentage of Total ASKs 47% Best Low-Cost Carrier Best Airline in Brazil Best Loyalty Program in Most On-Time LCC 6% • New, modern aircraft Brazil in the World E2 38% in South America -24.0% 3% • Generous onboard service -29.0% A320neo 27% • Live TV 41% • Premium legroom (30-inch pitch 14% 35% or more vs. 29 inches) Fastest Check-in in Best Staff in South America’s most Best on-time airline Brazil Leadershiprship South • Extra legroom with 34-inch pitch America • Motivated and empowered E195 E2 A320neo 2017 2018 2019 2020 crewmembers • Customer-centric culture 118 seats 132 seats 174 seats 3rd Best Airline in the World Net Promoter Score* A320neo Seat Map 64 63 WC WC Performance Indicators

Most On-time LCC in A320neo WC WC Third Most On-time ABC DEF 90% of customers would recommend or strongly recommend the World (A15) Airline in the World (A15)

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 Azul to a friend or relative Low-Cost Low-Cost

Exit Rank OTP Rank OTP Exit Exit Carrier

Exit Carrier Source: Brazil’s Ministry of Transportation, Ports and Civil Aviation, Azul customer surveys, NPSbenchmarks.com, OAG (2015) • A320neo provides 56 additional seats at virtually no additional cost per flight compared to previous aircraft used in st Azul 91.0% rd * Net Promoter Score (NPS) is a management tool used to gauge the loyalty of a 1 3 Azul 91.0% long-haul missions, significantly reducing cost per seat firm’s customer relationships FIGURE 4 and a half times as many as our nearest competitor, made possible also by Azul’s FIGURE 5 partnerships with other airlines in the US, Europe and China. Everything that Azul does is based around the business’s core values: Although predominantly a low-cost airline, Azul operates modern aircraft with • Safety — respect life under all circumstances; generous services and better than average features and facilities such as legroom • Consideration — treat everyone as we would wish to be treated; which we believe to be one of the reasons why we have been growing so fast (the • Integrity — honor our word and act ethically; A330s used on Azul’s international services have facilities such as the sky sofa) and • Passion — be passionate about what we do to serve people; which have been recognized with a number of independent awards (figure 5). • Innovation — in everything we do and pursue, innovate to be better; • Excellence — do the best to achieve exceptional results. That first core value, safety, has driven the key subject of this article, flight “……aircraft operators have a responsibility for aircraft tracking. tracking and to maintain a ground-based record of the FLIGHT TRACKING: ICAO AND GADSS four dimensional (4D) position of an individual aircraft in Following a number of well-publicized incidents where not knowing an aircraft’s flight, the 4D position report including time, latitude, location was a key consideration, a lot of work has been invested by ICAO (International Civil Aviation Organization) to generate a Global Aeronautical longitude and altitude.” Distress & Safety System (GADSS) with ‘Aircraft Tracking’, ICAO Annex 6. This has established that aircraft operators have a responsibility for aircraft tracking

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for tracking their own flights. The challenge that we face in Brazil is that there is not full coverage across the country for VHF at flight level FL180 but, for the Embraer, Airbus A320 and wide-body A330 there is full coverage across the continent because their flight level is above FL200. However, it is necessary to solve this problem and the solution at which we arrived was to implement FlightTracker from SITAONAIR. Not only does it fulfil the requirements of ICAO GADSS but also it does not require any significant re-engineering of the aircraft. Let me explain.

FLIGHTTRACKER: SPACE-BASED ADS-B FlightTracker is a space-based ADS-B (Automatic Dependent Surveillance — Broadcast) solution powered by Aireon. Azul does not need to put anything in the aircraft but will enjoy the benefit of global coverage, including those areas where there are gaps in VHF coverage (see above) as well as coverage for Oceanic areas. How it will work is that the space-based ADS-B will be added to FlightTracker and aircraft positions will be identified as such within the application. Importantly, no changes are needed to the aircraft in order to use the application which is very valuable because if, say, we had to install some satellite communication technology, that would require that the aircraft be taken out of service or a maintenance event be extended which would mean significant cost and to maintain a ground-based record of the four January 2021, autonomous distress tracking will be implications to do that. dimensional (4D) position of an individual aircraft in introduced and that report generation will need to be Data about the aircraft’s position is passed to flight, the 4D position report including time, latitude, every minute. Fortunately, the system that Azul Linhas FlightTracker using the existing web service from longitude and altitude. The aim of this ICAO Aéreas has adopted for this purpose, FlightTracker FlightAware and all existing FlightTracker alerting standard is to reduce the potential search and rescue from SITAONAIR, is already capable of supporting the functions are available against this data. That means area in the event of an incident, to 6NM (nautical ground based component. Space Based ADS-B is a that alerts can be set up with changes of rules or miles) radius. key component for the provision of 4D position anything that the airline needs. Importantly, this all The target dates for implementation of these reports every 1 minute supporting the distress tracking allows the airline to meet GADSS without increasing standards for aircraft tracking are that by 8th standard required by ICAO. the costs of ACARS/SATCOM messaging purely for November 2018 (later this year) airlines should have in So, looking at Azul’s progress in this matter, in 2015 position reporting. Also, Azul does not need to have place, for aircraft in the air, a system that will generate there was one person per shift who was responsible for an Iridium contract because everything is undertaken a 4D position report every 15 minutes. Thereafter, by flight tracking. Today, every dispatcher is responsible by and handled through SITAONAIR.

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FlightTracker currently uses a combination of position sources to maximize coverage, including: Terrestrial ADS-B; Various FANS (Future Air Navigation Systems) based communications, ADS-C (Automatic Dependent Surveillance — Contract), CPDLC (Controller-Pilot Data Link Communication) and AFN (Aeronautical Facilities Notification); ACARS; and Radar. As already mentioned and importantly, the system is specifically designed to provide aircraft tracking using existing on-board equipment which matters in “…the system is specifically designed to provide aircraft terms of cost for the solution. The Alert Module in FlightTracker continually tracking using existing on-board equipment which tracks each flight automatically and generates a warning when an aircraft triggers certain defined conditions. Alerts can be set up to suit the airline’s needs matters in terms of cost…” and to trigger various actions, including uplinks to the aircraft; also messaging actions can escalate as the severity of the condition changes and, in more critical cases, FlightTracker can automatically set up an ADS-C contract for FANS FELIPE STARLING equipped aircraft to provide an additional 1 minute position reporting option for Felipe is the Business Solution Manager at Azul responsible for the remainder of the flight. developments and implementations on existing and new systems, including Flight Operations, OCC (Operations Control Center), Crew App, Safety, HOW THE FUTURE WILL LOOK Employees Training, Crew Planning and Optimization, Statistics, Customer In figure 6 you can see what we expect for the future when there is full global Experience, etc. Previously, as Statistics and Business Intelligence Manager, coverage with satellites. he developed online multi-channel dashboards with KPIs and was responsible for Call Center workforce sizing, automated dialer strategy and sales commission modelling. Space Based ADS-B Initial satellites are already Constellation will comprise AZUL LINHAS AÉREAS in service with remaining 66 satellites with 9 in flight Azul Linhas Aéreas Brasileiras S/A is a Brazilian carrier deployment over the spares and additional based in São Paulo. The company’s business model is to coming months ground spares stimulate demand by providing frequent and affordable air service to underserved markets throughout Brazil. Azul serves 108 destinations in Argentina, Brazil, French Guiana, Portugal, the United States, and Uruguay plus some other locations by means of dedicated executive bus services to the nearest airport

SITAONAIR SITAONAIR is the air travel industry’s trusted connected aircraft service expert, helping airlines around the world realize the full potential of nose-to- tail connectivity. Whether personalizing the passenger experience, streamlining cabin and cockpit operations, or optimizing maintenance procedures, SITAONAIR solutions enable Provides 100% Global cover including airlines to navigate the complexity of connectivity and unlock connected aircraft value. Polar, Oceanic and other remote areas 16 INTERACTIVE GIVE US YOUR OPINION CLICK HERE TO POST YOUR COMMENT FIGURE 6 The satellites are not yet fully deployed but will be by the end of the year to INTERACTIVE SUBSCRIBE HERE meet ICAO requirements and to deliver the full FlightTracker solution. CLICK HERE TO READ ALL FUTURE EDITIONS

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