Brazilian Airline, Gol Linhas Aereas Inteligentes SA (GOL - Analyst Report) announced the acquisition of its rival, Webjet Linhas Aereas SA, a low-cost carrier based in Rio de Janeiro, for R$96 million ($61.53 million). According to the regulatory filing, the constituent parts of the airline have been valued at a total of R$310.7 million. The company agreed to assume Webjet's debt and stated that the acquisition price is subject to change.
According to Brazil’s aviation authority, GOL’s market share fell 35.4% in May 2011 from 36.5% in the previous month and 40.5% a year earlier. The acquisition is intended to recover the company’s market share in Latin America’s fastest-growing economy. Moreover, the airline’s expansion may also help offset the pressure on margins arising due to high fuel prices.
Webjet is Brazil’s fourth-largest airline, having approximately 5.4% of domestic flights and a negligible share of international routes. The deal is expected to give the two companies the controlling authority of about 40% of the Brazilian market. Moreover, GOL will now be able to access Webjet’s slots at Brazil’s main hubs, thereby adding the competitor’s leisure passengers into their own consumer portfolio.
GOL’s capacity expansion strategy is in line with the current global aviation scenario and boosted supply by 3.8% year over year. Going forward, GOL plans to improve aircraft productivity by increasing load factor, reducing fuel consuming charter flights and reassessing financial route viability as a cost effective business tactics.
Gol Linhas is one of the most profitable low-cost airlines in the world connecting the cities of Brazil as well as those in Argentina, Bolivia, Chile, Paraguay, Peru and Uruguay. The company currently operates about 38% of Brazil's domestic flights and 12% of international flights. It competes directly with its peers, such as Copa Holdings SA (CPA - Snapshot Report), LAN Airlines S.A (LFL - Snapshot Report), and TAM S.A (TAM - Snapshot Report).
We currently maintain a long-term Neutral recommendation on the stock. GOL has a Zacks #3 Rank, which translates into a short-term Hold rating (1-3 months).