GOL Linhas Aéreas Inteligentes S.A. (GOL) received approval from the National Civil Aviation Agency (ANAC) to conclude its acquisition of Webjet Linhas Aéreas S.A. through its subsidiary VRG Linhas Aéreas S.A., according to the Memorandum of Understanding executed on July 8, 2011.
GOL announced that it will acquire its rival Webjet for R$96 million ($61.53 million) in early July. The acquisition was intended to recover GOL’s market share in Latin America’s fastest-growing economy and give the two companies the controlling authority of about 40% of the Brazilian market. Moreover, the airline’s expansion was also aimed to offset the pressure on margins arising due to high fuel prices.
GOL is the largest low-cost and low-fare airline in Latin America, currently operating more than 940 daily flights to 63 destinations connecting important cities in Brazil and 13 major destinations in South America and Caribbean. The company also operates modern fleet of Boeing 737 Next Generation aircraft, with high aircraft utilization and efficiency levels.
On the other hand, Webjet is Brazil’s fourth-largest airline, offering 5.4% of domestic flights and a few international ones. With this acquisition, GOL will now be able to access Webjet’s slots at Brazil’s main hubs, thereby adding the competitor’s leisure passengers into their own consumer portfolio.
GOL reported passenger traffic for the month of August 2011 with 10.5% year-over-year increase in demand on its total route network driven by expansion in the route network and incentives to raise air-travel demand. Domestic demand rose by 14.1% while international demand plummeted 20.2% year over year.
Gol Linhas competes directly with its peers, such as Copa Holdings SA (CPA), LAN Airlines S.A (LFL), and TAM S.A (TAM).
We currently maintain a long-term Underperform recommendation on the stock. GOL has a Zacks #5 Rank, which translates into a short-term Strong Sell rating (1-3 months).
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