New Agreement for GOL - Analyst Blog

GOL Linhas Aereas Inteligentes S.A. (GOL) has formed a code-share agreement with Qatar Airways where the latter will add its code (QR) to all the 48 GOL flights departing from Sao Paulo.  

This new agreement might help GOL Linhas in increasing its passenger traffic for the coming months. GOL Linhas has been continuously increasing the frequency of its flights to the existing high-demand markets and adding new routes. 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.

During December 2010, total traffic surged 4.5% in comparison with December 2009 with domestic traffic increasing 4.7% and international traffic up 3.1%. GOL Linhas also anticipates a 10% - 15% increase in its total air traffic demand in fiscal 2011 focused on high demand routes.

The prime reason for the significant increase in passenger traffic was the recovery in market conditions and particularly the emerging economies like Latin America. Fuel prices are in their low-90s, down from the peak of nearly $150 per barrel in 2008. The International Air Transport Association (IATA) expects the airline industry to make a profit of $9.1 billion in 2011.

In addition to the above, GOL is expected to largely benefit from its fleet renewal program. The company 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, 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.

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 the Zacks #3 Rank (short-term Hold rating) on the ADS.

 
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