GOL's 2011 Guidance - Analyst Blog

First Brazilian low-fare airline, GOL Linhas Aereas (GOL) replaced its entire 737-300 and 767-300 aircraft with 737-800NGs and 737-700NGs for operations on short-and medium-haul routes. Hence, the total operating fleet size, which reached 111 at the end of fiscal 2010, is now expected to reach 115 by the end of fiscal 2011.

The fleet modernization plan guarantees that GOL's fleet will maintain its status as one of the youngest and most modern in the world. At the end of 2012, 65% of the fleet will comprise 737-800 SFP aircraft, maintaining a low average age of 6.9 years.

GOL Linhas also anticipates 10% to 15% increase in its total air traffic demand in fiscal 2011 with focus on high demand routes.

GOL Linhas already entered into an agreement with one of the Brazilian domestic airline, Passaredo Linhas Aereas, which is going to add more routes to the company and would definitely help the company penetrate into new destinations from wherever Passaredo operates.

Recently, it initiated a couple of flights from Brasiliato in the Caribbean. This initiative stems from improving market conditions, which have also bolstered passenger traffic.

With the revival of the markets, the airline industry as a whole is expected to show some decent results in the coming years. Fuel prices have also settled down to the mid-80s from the peak of nearly $150 per barrel. The International Air Transport Association (IATA) expects the airline industry to make a profit of $2.5 billion in 2010. Further, the economic growth in the emerging markets will be higher than the developed markets.

However, an intensely competitive environment particularly due to the proposed merger of two major Latin American airlines – LAN Airlines S.A. (LFL) and TAM S.A. (TAM) – will put the stock under pressure. The combined company will be called LATAM Airlines Group S.A. (LATAM).

Thus, over the long term, we maintain our Neutral recommendation on GOL Linhas and currently retain a short-term “Hold” rating on the ADS, equivalent to Zacks #3 Rank.

 
GOL LINHAS-ADR (GOL): Free Stock Analysis Report
 
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