Brazil’s largest low-fare airline operator, GOL Linhas Aereas Inteligentes S.A. (GOL) has introduced new flights to the city of Montes Claros , in the state of Minas Gerais.

Gol has been continuously increasing the frequency of flights to the existing high-demand markets and adding new routes. Recently, it also initiated a couple of flights from Brasilia to the Caribbean. This initiative stems from improving market conditions, which have also bolstered passenger traffic.

GOL recorded a 12.2% year-over-year increase in passenger traffic in July 2010 and during the second quarter of fiscal 2010. Domestic traffic grew 17.0% year-over-year and international traffic rose 13.7%.

GOL is expected to benefit from its fleet renewal program. During the second quarter of fiscal 2010, GOL consolidated its fleet renovation program by reducing the number of grounded aircraft by 15 (return of 11 B737-300s and the reactivation of four B767s for charter activities). The decrease in the number of aircraft would definitely lower operating costs in the latter half of fiscal 2010, which will improve bottom-line results.

GOL Linhas is in the final phase of its plan to replace 737-300 and 767-300 aircraft with 737-800NGs and 737-700NGs for operations on short- and medium-haul routes. In 2010, it will renew its entire fleet and the total operating fleet size is expected to reach 111. 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 2012, 65% of the fleet will comprise 737-800 SFP aircraft, maintaining a low average age of 6.9 years.

However, an intense competitive environment particularly due to 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).

However, high client concentration with regard to The Boeing Co. (BA) and CFM International for business and increase in net debt force us to remain on the sidelines. Thus, over the long term, we maintain our Neutral recommendation. The stock currently has a Zacks #3 Rank (short term Hold rating).
 
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