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Gol Linhas (GOL) Sees Demand Picking Up, Q2 RASK View Upbeat

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With travel restrictions having been relaxed, Gol Linhas Aereas Inteligentes SA (GOL - Free Report) has been seeing gradual improvement in demand for its services. As a result, the carrier increased its June capacity to 120 flights per day.

The airline’s initial June flying schedule was only 13% of June 2019 level. However, with the re-opening of five bases and increase in flights between São Paulo and Rio de Janeiro, June capacity increased to 17% towards the end of the month.

As demand continues to improve, Gol Linhas ramped up July services to 250 flights per day. With this, July capacity is expected to be 25% of July 2019 level. The carrier will be operating 36 aircraft in the network and plans to re-open 14 bases this month.

Cash Burn & Liquidity

In June, Gol Linhas had a net cash burn of R$2 million/day, including sales and receipts of approximately R$10 million/day. The Sao Paolo, Brazil-based airline witnessed a surge of 108% in ticket sales in June across all its channels compared to that in May. Additionally, revenues from passengers transported increased 150% from May. The carrier anticipates net cash burn of R$4 million/day for the rest of 2020 (July-December).

As of Jun 30, 2020, Gol Linhas had approximately R$3.3 billion in total liquidity, indicating more than 12 months of cash on hand (excluding refunds and restricted cash).

Q2 Outlook

For the second quarter of 2020, Gol Linhas expects a loss of $1.1 per share. EBITDA margin (non-operating and non-recurring expenses) is anticipated in the range of 23-25% for the quarter, indicating a decrease from 26% in the year-ago quarter. While passenger unit revenue is predicted to decline approximately 5% year-over-year, total unit revenues (“RASK”) are estimated to increase 30% year over year. The anticipated increase in total unit revenue is due to rise in cargo revenues.

However, non-fuel unit costs (“CASK” ex-fuel) are forecast to rise approximately 85% year over year for the second quarter due to an anticipated 92% decline in capacity and 37% depreciation of the Brazilian Real against the U.S. dollar.

On a positive note, fuel unit costs (CASK fuel) are estimated to plunge approximately 30% year-over-year, thanks to 38% decrease in the average fuel price. For the second quarter, average fuel price is estimated between R$1.83 and R$1.89 per liter. Meanwhile, total passenger demand, measured in revenue passenger kilometers,  is expected to drop approximately 92% year over year for the second quarter.

In the third quarter, the carrier plans to increase capacity by 300% over the second quarter, while the same is expected to be raised by 120% in the fourth quarter over the third.

Zacks Rank & Key Picks

Gol Linhas carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader Transportation sector are Martin Midstream Partners LP (MMLP - Free Report) , StealthGas Inc (GASS - Free Report) and Diamond S Shipping Inc. . While Martin Midstream and StealthGas sport a Zacks Rank #1 (Strong Buy), Diamond S Shipping carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

While Martin Midstream Partners surpassed the zacks Consensus estimate for earnings in three of the preceding four quarters, StealthGas beat estimates in each of the trailing four quarters. The Zacks Consensus Estimate for Diamond S Shipping’s current-year earnings has been revised upward by 7.4% in the past 60 days.

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