GOL Banks on Holiday Season Demand, Competition Rife

On Dec 19, 2014, we issued an updated research report on GOL Linhas Aereas SA (GOL). Low fuel price, coupled with increasing demand for air travel over the holiday season, have considerably boosted growth for the company and are believed to act as catalysts going ahead as well.

GOL delivered negative earnings surprises over the last four quarters, with an average miss of 351.85%. Also, the company reported wider-than-expected loss in the third quarter of 2014 with both the top and the bottom line missing the Zacks Consensus Estimate.

Meanwhile, GOL remains focused on fleet restructuring with the aim of bringing in advanced and young aircraft that will help further reduce operating expenses. At the end of the third quarter of 2014, the company had to furnish 130 aircraft deliveries. To date, the carrier has signed nine codeshare and 78 interline agreements.

GOL has been fortifying its foothold in the aviation industry with the expansion of its international business. Moreover, an improving U.S. economy will act as a positive for the Brazilian carrier as it generates significant business from the nation.

However, the company is exposed to considerable currency fluctuation risk. Depreciation of Brazilian real against the U.S. dollar could also be a major worry for GOL, tending to impact its profitability. Moreover, operating costs related to aircraft rent, maintenance, and promotional activities have put margins under pressure.

Meanwhile, Brazil’s third most popular carrier Azul SA announced its decision to operate 75 Airbus jets to the U.S. Azul is continuously expanding its fleet in order to compete with GOL and TAM, the other two leading carriers in the domestic market. This also poses a serious threat to GOL’s income.

GOL currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the airline space include Delta Air Lines Inc. (DAL), Republic Airways Holdings Inc. (RJET) and Hawaiian Holdings (HA). All these sport a Zacks Rank #1 (Strong Buy).