We recently reiterated our Neutral recommendation on the
GOL Linhas Aéreas Inteligentes S.A.
The company is one of the most profitable low-cost airlines in the
world and the most profitable airline in South America, having
surpassed the mark of 160 million passengers carried in just 10
years of operations.
Gol Linhas' long-term growth strategy includes cost minimization by
mitigating the adverse effects of higher fuel price. Its low-cost
differentiated approach and consultancy services for reducing gas
emissions are expected to bolster its market position.
In addition, the company is working towards enhancing its fleet
efficacy that 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
These long-term growth prospects notwithstanding, weak financial
results and uncertainties associated with declining customer demand
across the company's domestic as well as international route
network, rise in fuel prices and negative impact of foreign
currency translation induce our cautious stance.
GOL's 2Q12 results were weaker than its comparable quarters as loss
widened and nearly doubled to settle at R$715 million. Loss per ADR
came in at US$1.37. Revenue hike of 17% was more than offset by
higher operating expenses.-caused mainly due to devaluation of real
against dollar and rise in fuel prices.
Also, fierce competition from other industry players, such as
Copa Holdings SA
LAN Airlines S.A
) remain a nagging concern on the stock.
GOL Linhas currently GOL has a Zacks #3 Rank, which translates
into a short-term (1-3 months) 'Hold' rating.
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