On Nov 28, 2013, we maintained our Neutral recommendation on
GOL Linhas Aereas
). We are encouraged by the company's command over the Brazilian
air travel sector supported by network expansion across the
globe, fleet restructuring, competitive pricing and enhancement
of customer services. However, a competitive sector scenario,
imbalance in domestic supply and demand ratio and a weak domestic
currency remain our concerns. The passenger airline holds a Zacks
Rank #4 (Sell).
Why Kept at Neutral?
GOL expects leisure air travel demand to increase in Brazil
during the football world cup in 2014 and is thus focusing on
flexibility, punctuality and competitive rates to tap the
opportunity. While the company expects domestic supply in 2014 to
remain flat year over year, it is preparing for asset sales,
layoffs and cutbacks to return to profitability.
We believe the company's new Smiles Program, which is aimed at
increasing customer loyalty and offering a cost effective flight
will pave way for further growth. GOL has entered into a number
of collaborations to expand its operating base, including a code
share agreement with
Delta Airlines Inc.
). The carriers have attained their immediate goal of expanding
the code share agreement, thus effectively serving GOL customers
on long haul flights and providing access to 5 markets that Delta
However, the shrinkage in the Brazilian economy remains the
primary headwind for GOL, which is expected to reduce by 16% in
2014. GOL faces stiff fare competition from the existing players.
The trend is expected to continue considering the economic
weakness along with the slump in the domestic air travel
The company declared that it could further reduce its domestic
operations in 2014 due to the slow pace of Brazilian economic
growth, while increasing its international presence. In the
process, the company is being exposed to currency fluctuation
risk. This problem is aggravated by depreciation in the value of
Brazilian Real against U.S. dollar. Thus we remain sidelined on
Stocks that are worth considering within this sector are
Spirit Airline Inc.
U.S. Airways Group Inc.
). Both LCC and SAVE currently carry a Zacks Rank #1 (Strong
DELTA AIR LINES (DAL): Free Stock Analysis
GOL LINHAS-ADR (GOL): Free Stock Analysis
US AIRWAYS GRP (LCC): Free Stock Analysis
SPIRIT AIRLINES (SAVE): Free Stock Analysis
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