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Soft July Traffic for GOL

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Leading Latin American airline, GOL Linhas Aereas Inteligentes S.A. (GOL - Free Report) posted soft traffic results for Jul 2013. However, net passenger revenue per available seat kilometer (PRASK) for the month increased 18% year over year resulting in highest PRASK increase in the last couple of years.

Revenue passenger kilometers or RPK – implying revenue generated per kilometer per passenger – for the month decreased 9.8% from the year-ago period to 3,109.0 million. Although international RPK showed an improvement of 18.2%, domestic activities fell 12.6%.

Available seat kilometers (ASK) – that measures an airline's passenger carrying capacity – slipped 1.9% year over year to 4,387.3 million. Home ground capacity dropped 4.8%, while on the international front, ASK inched up 26.4%.

Domestic and international load factor decreased 8.1% and 6.5%, respectively, while the consolidated load factor declined 8.0%.

The company’s not-so-impressive performance was due to a 4% rise in fuel prices as against the comparable period of last year. The rise is primarily attributable to the depreciation of Brazilian Real against Dollar in Jul 2013. The company also expects record fuel prices for the next few months given the strength of dollar. Additionally, the increased number of flights to Santo Domingo, with 85% of available seats for sale in the company's 737-800 NG aircraft put pressure on its load factor.

To cope with the disappointing results, GOL is consistently taking steps to enhance its operations. The company is in attempts to increase its operations at Viracopos Airport, in Campinas. Management plans to start six new daily flights from the city in Sao Paulo, including five to Santos Dumont/RJ and one to Brasília, from September. GOL is also contemplating to start a new itinerary between Brazil and Nigeria, in Africa.

We believe that GOL’s growth initiatives that include streamlining of supply, introduction of new routes, expansion of overseas operations, collaboration with other carriers such as Delta Airlines Inc. (DAL - Free Report) and purchase of modern and superior jets will aid the company to register higher revenues and earnings in the coming months.

GOL, which operates with other industry players such as Copa Holdings SA (CPA - Free Report) has a Zacks Rank #3 (Hold). Another stock worth mentioning within this sector is U.S. Airways Group Inc. , which currently carries a Zacks Rank #1 (Strong Buy).

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