On April 11, 2014, we issued an updated research report on
GOL Linhas Aereas
). We are encouraged by the company's command over the Brazilian
air travel sector supported by international network expansion,
fleet restructuring, competitive pricing and enhancement of
customer services. However, a competitive sector scenario, weak
domestic currency and reduction in domestic supply remain our
concerns. The passenger airline holds a Zacks Rank #3 (Hold).
GOL expects leisure air travel demand to increase in Brazil
during the 2014 football world cup and is thus focusing on
flexibility, punctuality and competitive rates to capitalize on
the opportunity. The company expects consolidation of strategy
and improvement of products to deliver profitability in 2014.
We believe the company's new Smiles Program, aimed at
enhancing customer loyalty and offering low-priced flights, will
pave way for further growth. The carrier's GOL+ product is
performing well and ensures greater comfort for passengers. GOL
aims to cover 80% of its total flight with GOL+ by the end of May
GOL has entered into a number of collaborations to expand its
operating base, including a code share agreement with
Delta Airlines Inc.
). To widen its U.S. exposure, GOL made a formal request to the
Brazilian Civil Aviation Agency to run a regular service between
Campinas and Miami, with a scheduled stop at Santo Domingo.
However, the slump in the Brazilian economy remains the
primary headwind for GOL, which is expected to grow at a rate of
1.8% as compared with 2.3% in 2013. GOL declared that it could
further reduce its domestic operations in 2014 due to sluggish
economic growth and expects its supply to vary between negative
3% and 1% in 2014 within the domestic market.
Around 11% depreciation in Brazilian real value against U.S.
dollar could impact the company's profitability. Moreover,
operating costs related to salaries, employee bonus and
commissions pressure margins. Thus, we remain sidelined on the
Key Picks from the Sector
Stocks that are worth considering within this sector are
Southwest Airlines Co.
Alaska Air Group Inc.
). Both LUV and ALK currently carry a Zacks Rank #1 (Strong
ALASKA AIR GRP (ALK): Free Stock Analysis
DELTA AIR LINES (DAL): Free Stock Analysis
GOL LINHAS-ADR (GOL): Free Stock Analysis
SOUTHWEST AIR (LUV): Free Stock Analysis
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