We continue to hold our 'Neutral' recommendation on
Gol Linhas Aereas
We are still optimistic on GOL's long-term business strategy,
which involves successful expansion of high-demand routes,
strategic acquisitions and codeshare agreements with market
leaders. Also, the company's focus onenhancing the efficacy of its
fleet is expected to boost the productivity and occupancy rates in
the coming quarters.
The company's focus on ancillary services including extensive
e-commerce platform, insurance, car rentals and ticket sales from
kiosks are expected to reinvigorate customer demand while
increasing sales. Gol's divestiture strategy on less profitable
routes looks favorable toward expense management.
GOL's long-term growth strategy of cost minimization is believed
to offset the adverse effects of high fuel prices. The company's
low-cost differentiated approach, consultancy services toward fuel
saving while reducing gas emissions will continue to strengthen its
market position over time.
However, the company is facing fierce competition in the
domestic market from industry players, such as
Copa Holdings SA
LAN Airlines S.A
). Nevertheless, within the company's international route network,
declining customer demand for flights has also been adversely
affecting revenues over quite some time.
Rising fuel prices, leading to the company's shrinking
profitability, remain a cause of concern. In addition, the airport
infrastructural crisis in Brazil continues to lower flight
efficiency, with rampant cases of flight cancellations and delays.
GOL's weaker balance sheet on account of the company's huge loans,
liabilities and increased debt, raises anxiety on the stock.
The company's first-quarter 2012 results reported loss in net
income, reflecting the adverse effect of depreciation of Brazilian
real against the U.S. dollar. Moreover, operating costs related to
salaries, wages and benefits, and landing fees pressurized
margins, depressing our view on the stock
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