GOL reports disappointing earnings

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Brazilian low-fare air carrier Gol Linhas Aereas Inteligentes ( GOL , quote ) continues to underwhelm investors. The most recent batch of bad news came yesterday when the company announced a sizable loss for the 2012 fiscal year.

[caption align="alignright" caption="Brazilian low-fare carrier GOL continues to struggle"] Image courtesy Leandro Ciuffo: http://www.flickr.com/people/leandroneumann/ [/caption]

According to the earnings report , the airline lost R$447m ($220m) for the fourth quarter of 2012, and R$1.5b ( $743m) for FY 2012.

The company blamed a number of factors for their substantial loss. From the release: "The financial results of 2012 reflect the challenging scenario experienced by the domestic airline industry in the last two years with an annual increase in the price of fuel of 18 per cent, a devaluation of the real against the dollar of 17 per cent, a rise in airport charges of 30 per cent and low Brazilian GDP growth."

While bankruptcy is not on the table yet, the Financial Times speculates that the company could potentially be a target for government intervention , as President Dilma Rousseff would probably not like to see the country's second largest airline file for bankruptcy prior to the massive influx of travelers coming to Brazil next summer for the World Cup.

However, given the track record of stocks like Petrobras ( PBR , quote ) and Vale ( quote ) after the Brazilian government has meddled in these companies' affairs, any bailout from Brasilia should not be perceived as a buying opportunity, as GOL's structural flaws remain intact : competition in the Brazilian domestic aviation space remains heavy, the real/dollar relationship remains problematic for the company, and fuel costs show little sign of subsiding.

As we mentioned in an article earlier this week , GOL's stock is in a short-term downtrend; as a result of the company's lackluster earnings report, this trend is likely to continue, potentially seeing the company break further support.

As we posited before, GOL is not an ideal place for investors looking for exposure to the emerging market airline space to park their money. Airlines like LATAM ( LFL , quote ) and COPA ( CPA , quote ) offer more consistent revenues, more compelling valuations, and more sustainable growth opportunities.

Author's family is long VALE and PBR; Author may initiate short position in GOL and long position in CPA within the next 72 hours.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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