On November 10, 2011, GOL Linhas A (GOL) reported financial results for the third quarter of fiscal 2011. Net loss in the quarter was recorded at R$516.5 million (US$316.9 million) compared with a net income of R$110.0 million (US$63.2million) in the year-ago quarter.
The loss was primarily attributable to the depreciation of the Brazilian currency against dollar, which generated a huge net expense from the foreign exchange variation; as most of the company’s financial liabilities are represented in Dollars.
Revenue
During the third quarter, net revenue was R$1,843.7 million (US$1,131.1 million), up 3.1% year over year and 17.7% sequentially. The year-over-year increase reflected a rise of 10.4% in demand on the company’s route network leading to a growth in load factor. In addition, ancillary revenues increased by 12.5% and accounted for approximately 11.5% of total net revenue.
The load factor on GOL’s route network reached 71.5% in 3Q11, up from 68.4% reported in 3Q10 and 66.5% in the prior-year quarter. GOL’s domestic demand increased 13.5%, mainly due to the fare discounts, whereas international route network fell by 16.1% over the prior-year quarter. Supply on GOL’s total route network increased by 5.7%, due to a rise in fleet productivity, occupancy rate and higher number of destinations.
GOL Linhas closed the quarter with a standardized operational fleet of 118 B737-700 and 800 NG aircraft, with an average age of 6.8 years and a total fleet of 124 aircraft.
Operating costs and expenses in the quarter increased 19.8% year over year and 4.4% sequentially to R$1,837.2 million (US$1,127.1 million). Operating loss (EBIT) came in at R$75.1 million (US$46.1 million) with a margin of negative 4.1% compared with an operating income of R$187.2 million (US$107.6 million) with a margin of 4.5% in the prior-year period. The loss reflected higher-than-expected expenses, including salaries, wages and benefits, landing fees, expenses from aircraft returns among others.
The company reported an EBITDA of R$15.6 million (US$9.6 million) with a margin of 0.8%, down from R$250.5 million (US$144 million) with a margin of 14.0% recorded in the third quarter of 2010.
Balance Sheet
Exiting the third quarter, GOL Linhas’ cash and cash equivalents decreased sequentially from R$1,643.5 million (US$1,046.8 million) to R$1,302.7 million (US$711.9 million). Long-term debt increased from R$3,700.1 million (US$2,356.8 million) to R$4,282.4 million (US$2,340.1million) in the reported quarter.
Net cash provided by operating activities declined 9% year over year to R$216.8 million (US$133 million) in the reported quarter. Payment for property, plant and equipment plummeted 30.7% year over year to R$161.4 million (US$99 million).
Guidance: The company retains operating margin guidance in the range of 1% to 4% and expectation for Domestic Demand growth within the range of 12% to 18% RPK. The company also maintains the operating fleet plan of 131 aircrafts by fiscal 2015.
GOL Linhas is one of the most profitable low-cost airlines in the world connecting the cities of Brazil as well as those in Argentina, Bolivia, Chile, Paraguay, Peru and Uruguay. It competes directly with its peers, such as Copa Holdings SA (CPA), LAN Airlines S.A (LFL), and TAM S.A (TAM).
We currently maintain a long-term Underperform recommendation on the stock. GOL has a Zacks #5 Rank, which translates into a short-term Strong Sell rating (1-3 months).
