Brazilian Gol Airlines SMILES

Earlier this week, Gol Linhas Aereas (GOL - Analyst Report) the first Brazilian low-fare airline, announced the creation of the SMILES credit card through its subsidiary, VRG Linhas Aereas S.A., in partnership with two banks, Brasil SA and Banco Bradesco SA (BBD).

According to the agreement, the banks will issue credit cards to their clients bearing the SMILES air-miles logo and GOL will receive R$252 million (US$129 million) in return. Out of that, 60% will be paid by July 31, 22% will be paid by January 31, 2010 and the remaining 18% will be paid in monthly installments in the first five years.

The company intends to make people familiar with the benefits of SMILES through this initiative, which is indirectly expected to boost its revenue. SMILES loyalty program, the largest mileage program in Latin America, currently has more than 6.2 million clients with up to 100,000 new registrations each month. The company acquired VARIG's SMILES frequent flyer program in October 2008, when it consolidated with VRG.

Recently, Gol purchased some stock in UATP's business travel program and became a UATP shareholder. UATP -- whose accounts are accepted as a form of payment for corporate business travel by Amtrak, airlines and travel agencies worldwide -- will help develop a corporate client base, which will be a revenue booster for the company.

Although oil prices have increased to US$71 per barrel from approx US$35 per barrel in March 2009, they are expected to fall below US$60 by the end of the year because of weak global sentiments. The decrease in oil prices will benefit the aviation industry by reducing airline fuel costs. Therefore, we continue to have a neutral view on Gol, Tam (TAM - Analyst Report), and Lan Airlines S.A. (LFL - Analyst Report).