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GOL Lags Both Earnings and Rev

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GOL Linhas Aereas Inteligentes S.A. (GOL - Free Report) reported first-quarter 2013 net loss per share of R$0.27 or a loss of approximately 13 cents, which was wider than the Zacks Consensus Estimate of loss per share of one cent. The results also deteriorated from the year-ago loss of R$0.15 (or approximately 7 cents). The quarter’s results were impacted largely by a rise in aircraft rent and traffic service fess along with higher maintenance, materials and repair charges.

The company reported first-quarter net loss of R$75.3 million (approximately $37.6 million), a steep plunge from the year-ago net income of R$41.4 million (approximately $20.7 million).

Net revenue was down 3.8% year over year at R$2,082.7 million (approximately $1,040.9 million) in the reported quarter. The results also failed to meet our expectation of $1,061.0 million.

Operational Statistics

Revenue passenger kilometers or RPK – implying revenue generated per kilometer per passenger – for the quarter declined 12.8% from the year-ago period to 8,292.0 million. International RPK improvement of 21.1% was somewhat negated by lower revenues (down 12.8%) from the domestic grounds.

Available seat kilometers (ASK) – that measures an airline's passenger carrying capacity – fell 11.9% year over year to 12,329.0 million, with domestic decline of 15.7%. On the international front, ASK moved up 34.0%.

During the quarter, the company’s total load factor was at 67.3%, down 60 basis points from the year-ago quarter. Load factor on the domestic arena moved up 10 basis points (bps) and internationally, it plunged 650 bps.

Exiting the quarter, GOL Linhas had a total fleet of 148 jets including The Boeing Company’s (BA - Free Report) 131 B737-700 and 800 NG aircraft with an average age of 7.1 years, in addition to 15 B737-300s.

On Nov 23, 2012, GOL announced the grounding of 19 B737-300s due to discontinuation of Webjet’s operations. During the reported quarter, 4 of the leased aircraft of Webjet were returned and the remaining will be returned by mid 2013. The company is seeking negation for the remaining six B737-300s.


Operating costs and expenses fell 8.2% year over year to R$1,981.5 million (approximately $990.4 million) in the reported quarter, based on a drop in fuel prices and less pressure from salaries and wages.

First-quarter operating income (EBIT) came in at R$101.2 million (approximately $50.6 million) compared with R$7.3 million (approximately $3.6 million) in the year-ago quarter. Operating margin was 4.9%, up 460 basis points from first quarter 2012.

The company’s first-quarter adjusted EBITDA of R$212.1 million (approximately $106.0 million) was up from EBITDA of R$126.2 million (approximately $63.1 million) reported in first quarter 2012. EBITDA margin was 10.2% compared with 5.8% in the prior-year quarter.


Exiting the first quarter, GOL Linhas' cash and cash equivalents decreased to R$866.0 million (approximately $432.8 million) from R$1,314.6 million (approximately $657.0 million) in the corresponding year-ago period. Long-term debt increased to R$4,849.9 million (approximately $2,424.0 million) from R$4,404.2 million (approximately $2,201.2 million) in the year-earlier period. The company incurred capital spending of nearly R$242.0 million (approximately $121.0 million).

Smiles S.A.

During the quarter, management of GOL gave a nod for the initial public offering (IPO) of Smiles S.A. On May 10, Smiles S.A. commenced the offering at a price of about R$1.1 billion, representing 52,173,912 common shares.


GOL entered into a codeshare agreement with Della Airlines (DAL - Free Report) , whereby the two carriers will maximize the connecting routes in the Brazil–United States passage. By August-end, all spots in Brazil that are operated by Delta will be incorporated into GOL’s network. These will also be available for sale through GOL’s channels.

Our Take

We believe that GOL’s long-term business strategy of route expansion, strategic acquisitions and agreements with other companies are likely to create significant operational synergies.

However, various risk factors such as competitive threats, international business risks, increased aircraft maintenance costs along with lower demand remain our nagging concerns on the stock. Also, the company’s increased loans and debts along with the effects of currency depreciation may cloud the near-term prospects.

GOL – which operates with other industry players such as Copa Holdings SA (CPA - Free Report) – has a Zacks Rank #4 (Sell).

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