Zacks_Analysts' Blog : GOL's August Traffic Updates - Analyst Blog

GOL Linhas Aereas Inteligentes S.A. (GOL), recently reported passenger traffic for the month of August 2011 in comparison with the year-ago quarter and the previous quarter.

The company experienced a 10.5% year-over-year increase in demand on its total route network. Domestic demand rose by 14.1% while international demand plummeted 20.2% year over year. Spurt in domestic demand was due to expansion in the route network and incentives given to encourage air travel in seasonally low demand months.

International traffic was hit hard by the return of three aircraft chartered for international flights as well as cessation of flights to Bogota and appreciation of Real against dollar.

On a sequential basis, total demand plummeted by 9.4%; with a decline of roughly 8.8% registered in domestic markets and 15.8% in the international markets.

Gol Linhas responded to the enhanced year-over-year demand by raising its supply by 7.0%. The company added three new aircraft during the period, started the new Fortaleza/Rio Branco route, and a new air service between Porto Alegre and Santiago. Load factor in the month was 69.1%.

Gol's management anticipates spending roughly R$500-R$550 million in capital spending in fiscal year 2011. Operating margin is likely to remain within the 1% to 4% range. The company expects domestic demand to grow within a range of 12% to 18% RPK. Moreover, by fiscal 2015, the company anticipates reaching an operating fleet plan of 131 aircraft.

Furthermore, the company's 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 2011, it is anticipated that 65% of the fleet would comprise 737-800 NG, including SFP (Short Field Performance) aircraft.

However, an intensely competitive environment, caused particularly by 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. Recent rise in fuel prices, appreciation of the Real against the U.S. dollar due to currency fluctuation may also impact the company’s profitability going forward.

The current Zacks Consensus Estimate for the third quarter is 1 cent, representing a year-over-year decline of 95.0%. Estimates for fiscal years 2011 and 2012 are a loss of 16 cents and a gain of 61 cents, reflecting a decline of 134.38% and growth of 467.1%, respectively.

Thus, we currently maintain an Underperform recommendation on GOL Linhas.