(GOL) GOL Linhas Aereas Inteligentes S.A. Traffic Woes Continue in March

Brazilian low-fare airline GOL Linhas Aereas Inteligentes S.A. (GOL) reported dull air traffic for Mar 2013. However, net passenger revenue per available seat kilometer (PRASK) for the month increased 16% year over year.

Revenue passenger kilometers or RPK – implies revenue generated per kilometer per passenger – for the month declined 7.8% from the year-ago period to 2,751.2 million. International RPK improvement of 37.0% somewhat negated lower revenues (down 11.1%) from the domestic grounds.

Available seat kilometers (ASK) – that measures an airline’s passenger carrying capacity – fell 6.2% year over year to 4,253.6 million, with domestic decline of 9.8%. On the international front, ASK moved up 38.3%.

Load factor on the domestic arena fell 90 basis points (bps) and internationally, it plunged 60 bps. On a consolidated basis, the load factor was 64.7% compared with 65.8% recorded in Mar 2012.

From Jan to Mar 2013, on a consolidated basis, GOL generated RPK of 8.29 billion (down 12.8% year over year) and ASK of 12.32 billion (down 11.9% year over year). Load factor was 67.3%, reflecting a decline of 60 basis points from the corresponding period last year.

Performance within the boundaries of the country was negatively impacted by the channeling of domestic capacity to overseas routes and the freeze of The Boeing Company’s (BA) 737-300 aircraft services, following the suspension of Webjet operation, last November. The company’s supply reduction strategy that was implemented from Mar 2012 also influenced the results.

Activities in the international market remained impressive as a result of expansion of GOL’s operations to newer destinations like Santo Domingo, Miami and Orlando. The Easter holiday season resulted in more air traveling, benefiting the performance level of the carrier.

In the coming quarters, we expect GOL – which has business tie-ups with Delta Air Lines Inc. (DAL) – to experience impressive results owing to route expansion measures, lucrative acquisitions and collaborations with other prominent market players. Moreover, the company’s efforts to curb the effect of fuel price increases as well as to maintain a low cost structure are likely to increase profitability

However, we stay cautious due to competitive threats from other Latin American players such as Copa Holdings SA (CPA), international business risks, increased operating expenses along with lower demand and appreciation of the U.S. dollar against Brazilian real.

GOL has a Zacks Rank #4 (Sell).

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