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Mixed Aug 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 Aug 2013. However, net passenger revenue per available seat kilometer (PRASK) for the month increased 24% year over year, resulting in the 17th consecutive monthly PRASK rise.

Revenue passenger kilometers or RPK – implying revenue generated per kilometer per passenger – for the month decreased 11.5% from the year-ago month to 2,728.6 million. Although international RPK showed an improvement of 17.0%, domestic activities fell 13.8%.

Available seat kilometers (ASK) – that measures an airline's passenger carrying capacity – slipped 5.1% year over year to 4,119.8 million. Home ground capacity slipped 7.6%, while on the international front, ASK increased 22.4%.

Domestic and international load factor decreased 4.8% and 2.8%, respectively, while the consolidated load factor declined 4.8%.

The company’s not-so-impressive performance in August was due to a 9% rise in fuel prices against the comparable month of last year. The rise was primarily attributable to the depreciation of Brazilian real against dollar in Aug 2013. The company also expects fuel price to increase further over the next few months given the strength of dollar.

Aligning with the current macroeconomic situation, GOL’s decision of decreasing the supply in the domestic market from 7% in Aug 2012 to 9% in Aug 2013 impacted the carrier’s capacity. 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 making 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 in Rio de Janeiro and one to Brasília, from September. GOL has recently enhanced its loyalty program by establishing a new mileage accrual model for domestic and international flights.

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 perform better going forward.

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 Hawaiian Holdings Inc. (HA - Free Report) , which currently carries a Zacks Rank #1 (Strong Buy).

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