Low-cost Brazilian carrier GOL Linhas Aereas (GOL) has announced an exclusive strategic partnership with European giant Air France-KLM SA aimed at expanding their operations between Brazil and Europe. Shareholders reacted positively to the news as the stock gained 5.5% in the Wednesday aftermarket trade on NYSE.
Per the agreement, Air France-KLM will invest $100 million of which $52 million will be in GOL’s preference share representing a 1.5% stake. The remaining $48 million will be invested as part of commercial agreements and bonus based on cost savings. Both the companies await regulatory approval for the deal.
The alliance includes increased code share, joint sales activities and enhanced offerings through their frequent flyer program, which will allow GOL to extend its service in Europe, while Air France-KLM will benefit by increasing its presence in Brazil. The agreement will allow both the companies to increase their service to 318 destinations across 115 countries.
GOL has a code sharing agreement with Della Airlines Inc. (DAL), whereby the two carriers will maximize the connecting routes in the Brazil–United States passage. The current code share agreement allows Delta to access 23 destinations in Brazil while GOL customers can access 5 markets that Delta currently serves.
Brazil will host the 2014 World Cup and 2016 Summer Olympics, two of the biggest global sporting events. This year the country is expected to get around 600,000 international visitors in addition to 3 million domestic fans during the event, presenting a big opportunity for passenger carriers like GOL.
Thus the partnership will strengthen GOL’s position in Europe – one of the most popular destinations for Brazil. Passengers from Europe are only expected to increase during the world cup, and drive growth. However, persistent weakness in the Brazilian economy, a depreciating Real and surging operating costs could create headwinds for the company going forward.
GOL currently carries a Zacks Rank #3 (Hold). Better-ranked stocks within this sector include United Continental Holdings Inc. (UAL) and American Airlines Group Inc. (AAL). Both carry a Zacks Rank #1 (Strong Buy).
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