May Traffic Update for GOL

Recently, GOL Linhas Aéreas Inteligentes S.A. ( GOL - Analyst Report ) reported air traffic update and announced the company’s total supply, demand, yield and load factor for the month of May, 2012.

Flight rationalization program, which commenced in March 2012, have been cutting down longer routes and night flights over these few months. This, in turn, has led to a fall in GOL’s domestic supply by 1.2% over May 2011. Although such a measure was targeted to raise flight profitability, it resulted in a 7% reduction in daily aircraft productivity. Also, at the end of May 2012, GOL’s route network comprised approximately 810 daily flights versus 900 in May 2011.

Supply on GOL’s international route network fell by 24.6% year over year, on account of discontinuation of flights to Bogotá, Colombia and replacement of 187-seat 737-800s with 144-seat 737-700s on flights to Montevideo.

Looking at the domestic demand side, GOL recorded 3.2% year-over-year increase in domestic demand on account of “mini holiday break” on Labor Day (May 1). International demand however declined 29.4% year over year due to the discontinuation of flights to Bogotá and the replacement on Montevideo flights.

GOL’s net yieldinched up 2% year over year while net PRASK increased approximately 6.5% over the year-ago period. The company’s total load factor was recorded at 65.2%, up 2.3 percentage points above May 2011.

Also, on May 4, GOLreported financial results for the first quarter of 2012 with a net loss of US$23.4 million. The loss was due to rising operating costs, especially fuel, landing fees at Brazilian airports as well as currency depreciation and income taxes. However, GOL’s strategy of enhancing the efficacy of its fleet continues to boost productivity and occupancy rates reinvigorating customer demand.

GOL Linhas, one of the most profitable low-cost airlines in the world, gives a tough competition to other industry players, such as Copa Holdings SA ( CPA - Snapshot Report ) , LAN Airlines S.A ( LFL - Snapshot Report ) , and TAM S.A ( TAM ) .

We currently maintain a long-term ‘Neutral’ recommendation on the stock. Also, GOL has a Zacks #3 Rank, which translates into a short-term (1-3 months) ‘Hold’ rating.