GOL Linhas Aereas Inteligentes S.A. posted a decline in air traffic for May 2016. Traffic – measured in revenue passenger kilometers (RPK) – stood at 2.80 billion, down 7.8% from 3.04 billion recorded a year ago.

Also, on a year-over-year basis, consolidated capacity (or available seat kilometers/ASKs) was down 6.6% to 3.74 billion mainly because of declines of 6.3% and 8.8% in domestic and international capacity, respectively. Likewise, both domestic and international RPK in the month deteriorated a respective 7.7% and 8.4%. Also, in May 2016, the carrier witnessed a 20.8% plunge in passenger count. Meanwhile, the load factor, or percentage of seats filled by passengers, was down to 74.9% from 75.8% recorded in May 2015.

At the end of the first five months of 2016, RPK was down 9.1% while ASK dropped 7.8%. Similarly, load factor for the same period fell 1.0 percentage points. Adverse conditions in the Brazilian economy, foreign currency headwinds owing to the strengthening of the U.S. dollar against the Brazilian real, lower passenger demand contributed to the declining in performance.  

Apart the aforesaid negatives, the company’s near-term results are likely to be hurt by increasing competition from new entrants. Ryanair Holdings Plc. (RYAAY Quick QuoteRYAAY - Free Report) is on track to start operations in Argentina, which is considered to be a market with good potential and low competition as of now. This new entry would challenge Gol Linhas’ business in the region.    

Zacks Rank & Stocks to Consider

GOL Linhas currently holds a Zacks Rank #2 (Buy). Other well-ranked stocks in the wider airlines sector include SkyWest Inc. (SKYW Quick QuoteSKYW - Free Report) and Air France-KLM SA (AFLYY Quick QuoteAFLYY - Free Report)   Both companies sport a Zacks Rank #1 (Strong Buy).

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