Brazilian airline Gol Linhas Aéreas Inteligentes (
GOL
,
quote
) is trading sharply lower today on news that
supply decreased for the month of March
. In spite of the negative reaction to this data, today's price
action may actually present a compelling buying opportunity for
long-term investors.
GOL reported a year-over-year 2.9% decline in March supply in an
announcement this morning. However, these lower numbers are in
fact an integral component of the airline's strategy for
returning to profitability this fiscal year.
As opposed to last year, during which the
Brazilian domestic aviation industry endured a
brutal fare war
with
TAM
(
quote
), GOL has opted to decrease capacity in order to increase
profitability through the elimination of some unprofitable,
poorly timed, and longer stage-length operations.
Ideally, GOL would have liked to have seen an increase in load
factors with fewer seats available for March. That being said,
even though GOL's March load factors were lower YOY by 4.5%, this
is by no means indicative of an ineffective strategy; rather,
GOL's load factors and demand were both affected by Carnival
falling during March in 2011 and February in 2012 which skewed
monthly traffic numbers. Investors should pay careful attention
to April load factor numbers released by the firm for more
definitive evidence of the efficacy of GOL's strategy.
For short-term traders, GOL remains in a downtrend. As a
result, the stock is likely to test its 52-week low at 5.03.
Support here could see the stock rebound; a breach could see
further downside.
On the other hand, long-term investors are starting to see
compelling values at these levels.
However, investors must be cognizant of two hurdles that are
likely to affect the stock over the short-to-medium term: high
oil prices and a weakening Brazilian real vis à vis the dollar. A
decrease in oil prices over the summer, a strong possibility in
light of potentially weakening global demand, would buoy GOL's
share price.
Investors with a long-term time horizon could start to scale
into a position here, as the stock is starting to look cheap with
a forward P/E of roughly 10. Over the long-term, as oil prices
eventually revert to the mean and Brazil's economy continues to
grow, GOL offers a great way to play the increase in travel
demand from both foreigners and Brazil's fast growing middle
class.
Disclosure: Author may initiate a position in GOL within
the next 72 hours
