GOL's July Traffic Update

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

Flight rationalization program, which commenced in March 2012, has resulted in a 9.2% decline in GOL’s domestic supply from July 2011, on account of discontinuation of around 130 daily flights. Such a measure is consistent with the company’s target of reducing domestic supply by 2% to 4.5% on a year-over-year basis. At the end of July 2012, GOL’s route network comprised approximately 810 daily flights versus 940 in July 2011.

Supply on GOL’s international route network increased 24.8% year over year, attributable to realization of 7 charter operations to Miami and 13 to Orlando.

GOL recorded a 7% year-over-year decrease in domestic demand. International demand, however, increased 20% year over year on increased flight operations to Miami and Orlando.

GOL’s net yield inched up 1% year over year while net PRASK increased approximately 3% from the year-ago period. The company’s total load factor was recorded at a 6-year-high figure of 77.1%, 1.3 percentage points higher than the July 2011 level.

Also, on August 13, GOL reported financial results for the second quarter of 2012 with a net loss of $364.8 million. The loss widened from the year-ago period due to a rise in fuel costs and landing fees at Brazilian airports. Currency depreciation and income taxes also added to the woes. However, GOL’s strategy of flight rationalization and enhancing of flight are anticipated to reinvigorate customer demand in the coming months.

GOL Linhas, one of the most profitable low-cost airlines in the world, gives 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 - Snapshot Report).

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.