We recently reiterated our Neutral recommendation on Brazil’s largest low-fare airline operator, GOL Linhas Aereas Inteligentes S.A. (GOL). The company surpassed 160.5 million passenger mark in the fourth quarter of 2010, since beginning its operations in 2001.
The company’s low-cost airline provides services in the major cities of Brazil as well as those in Argentina, Bolivia, Chile, Paraguay, Peru and Uruguay. GOL Linhas has been continuously increasing the frequency of its flights to the existing high-demand markets while adding new routes.
Passenger traffic is on the rise for the company and ending the month of February 2011, the company’s domestic passenger traffic increased 4.5% year over year while international traffic rose 5.9%. Recovery in market conditions, particularly Latin America’s return to economic stability, has brought about this spurt in passenger traffic.
To cater to the rising demand, the company increased its supply by 3.8%. Moreover, replacement of B737-300s with B737-800s with enhanced seating capacity proved beneficial for the company.
In addition to the above, GOL is expected to largely benefit from its fleet renewal program. The company replaced its entire 737-300 and 767-300 aircraft with 737-800NGs and 737-700NGs for operations on short-and medium-haul routes. Hence, the total operating fleet size, which reached 114 at the end of fiscal 2010, is now expected to reach 115 by the end of fiscal 2011 and 131 by the end of 2015.
The fleet modernization plan guarantees that GOL’s fleet will maintain its status as one of the youngest and most modern in the world. At the end of 2011, 65% of the fleet will comprise 737-800 NG, including SFP (Short Field Performance) aircraft. GOL Linhas also anticipates domestic demand growth to vary within the 10% to 15% range in the fiscal year 2011.
However, an intensely competitive environment, caused particularly by the proposed merger of two major Latin American airlines – LAN Airlines S.A. (LFL) and TAM S.A. (TAM) will put the stock under pressure. The combined company will be called LATAM Airlines Group S.A. (LATAM).
Thus, currently, we maintain our Neutral recommendation on GOL Linhas.
