On June 27, 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 efforts, competitive pricing and enhancement of
customer services. However, a competitive sector scenario, weak
domestic currency and imbalance in supply and demand ratio,
particularly in the international market, remain our concerns. The
passenger airline holds a Zacks Rank #3 (Hold).
GOL is witnessing surging demand in Brazil owing to the World
Cup and is focused on flexibility, efficiency, punctuality and
competitive rates to tap the opportunity. The company expects
consolidation of strategy and improvement of products to deliver
profitability in 2014 and remains committed to achieve an EBIT
margin of 3-6%.
The carrier also seeks to increase the frequency of daily
flights between Sao Paolo and Rio de Janeiro via the Campinas and
Santos do Dumont airports to 130. GOL is pursuing necessary
approval to restart its Sao Paolo-Santiago route in Chile and has
already launched direct flights between Fortaleza in Brazil and
Buenos Aires in Argentina, which are expected to boost the
company's dollar revenues.
We believe GOL's new Smiles Program, which is aimed at enhancing
customer loyalty and offering low-priced flights, will pave way for
further growth. Smiles also entered into an agreement with
Aerolineas Argentinas and TAP Portugal to allow GOL passengers to
accumulate miles while flying with the two carriers, and then use
them to redeem points.
GOL has entered into a number of collaborations to expand its
operating base, including a code share agreement with
Delta Airlines Inc.
). Recently, the carrier got the board and regulators' approval for
its exclusive strategic partnership with Air France-KLM SA, which
is aimed at expanding operations between Brazil and Europe.
However, the slump in the Brazilian economy remains the primary
headwind for GOL, which is expected to grow at a rate of 1.85% as
compared with 2.3% in 2013. Further, an expected decline in 2014
U.S. GDP growth remains a concern for GOL, as the country serves as
the largest intercontinental market for Brazil.
Moreover, around 18.5% depreciation in Brazilian real value
against the U.S. dollar could impact the company's profitability.
The global fuel price volatility also remains a significant
challenge for GOL, as the political turmoil in Iraq continues to
put upward pressure on crude.
Key Picks from the Sector
Some notable stocks within this sector are
Southwest Airlines Co
Republic Airways Holdings Inc.
). Both sport a Zacks Rank #1 (Strong Buy).
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GOL LINHAS-ADR (GOL): Free Stock Analysis
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DELTA AIR LINES (DAL): Free Stock Analysis
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