We are maintaining our Neutral recommendation on
GOL Linhas Aéreas Inteligentes S.A.
(
GOL
) based on its long-term business strategy of route expansion and
strategic acquisitions.
However, uncertainty associated with declining customer demand
and rising fuel prices give us a cautious stance.
GOL is striving toward maintaining its long-term growth strategy
of cost minimization by mitigating the adverse effects of higher
fuel prices. The company's low-cost differentiated approach and
consultancy services for reducing gas emissions are expected to
bolster its market position.
GOL's strategy of enhancing its fleet efficacy is expected to
boost productivity and occupancy rates in the coming quarters.
Also, over time, the company has raised the number of cities served
and inaugurated new terminals to ensure better service and
convenience for clients.
Furthermore, the company focuses on continuous improvement in
the ancillary services. These are expected to reinvigorate customer
demand and increase sales.
On the flipside, GOL faces uncertainty from a fierce pricing war
in the domestic market. Moreover, declining customer demand for
flights across the company's domestic and international route
network has adversely affected revenues for quite some time.
Adding to the woes is the company's high dependence on a few big
suppliers like Boeing 737-700/800 Next Generation aircraft and CFM
56-7B engines. A shift in loyalty among suppliers may negatively
affect profitability.
Depreciation of the Brazilian real with respect to the U.S.
dollar remains a nagging concern. Moreover, operating costs related
to salaries, wages and benefits, and landing fees have put margins
under tremendous pressure over the last few quarters.
GOL Linhas, one of the most profitable low-cost airlines in the
world, gives tough competition to other industry players, such as
Copa Holdings SA
(
CPA
),
LAN Airlines S.A
(
LFL
), and
TAM S.A
(
TAM
).
GOL has a Zacks #3 Rank, which translates into a short-term (1-3
months) 'Hold' rating.
COPA HLDGS SA-A (CPA): Free Stock Analysis
Report
GOL LINHAS-ADR (GOL): Free Stock Analysis
Report
LAN CHILE-ADR (LFL): Free Stock Analysis Report
(TAM): ETF Research Reports
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