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Gol Linhas Aereas Inteligentes SA

GOL raising fares for the first time in a year as Brazil's economy recovers

Laura Price  Nov 25, 2009

Gol Linhas Aereas Inteligentes SA, Brazil’s second-biggest airline, is raising fares for the first time in a year as the national economy shows signs of recovery, Chief Executive Officer Constantino de Oliveira Jr. said.

The carrier is charging passengers an average 12 percent more in the fourth quarter than in the previous three months, Oliveira said in an interview in London today. Fares are still “well below” year-earlier prices, he said.

Brazil’s gross domestic product will grow 5 percent next year after an estimated expansion of 0.2 percent in 2009, according to a weekly central bank survey. Gol’s yields, or average fare per kilometer flown, plunged 30 percent in the third quarter as the Sao Paulo-based airline sought to win customers from larger competitor Tam SA and discounters such as David Neeleman’s Azul Linhas Aereas Brasileiras.

“What’s important is to improve yields,” Oliveira said. “Yields have gone very low, but there’ll be a recovery without damaging the rise in demand our low fares have brought.”

Gol fell 1 percent to 21.97 reais in Sao Paulo trading, compared with a 1.3 percent decline in the Bovespa index. The shares have more than doubled this year, beating a 77 percent gain in Brazil’s benchmark Bovespa.

“They need to increase prices even more because the amount they reduced prices in the third quarter wasn’t equivalent to 12 percent,” said Cesar Mezomo, a senior analyst at Victoire Finance Capital in Sao Paulo. “It’s a first step toward future price increases. They’ve shown the worst is behind them.”

Market Forecast

The airline raised its market outlook for 2009 a week ago after posting a third-quarter profit that beat analysts’ estimates. Gol is forecasting a 14 percent jump this year in domestic traffic, or passenger numbers multiplied by the distance flown, following an earlier prediction of 2 percent to 4 percent industry growth.

A GDP expansion of 5 percent may lead to a 12 percent to 15 percent increase in Brazilian traffic next year, based on carriers’ past performance, Oliveira said today.

A gain in the real against the dollar and a decline in jet- fuel prices helped Gol post net income of 77.9 million reais ($45 million) in the third quarter, compared with a year-earlier loss of 510.7 million reais.

Gol is likely to post a “small” charge in the fourth quarter related to unwinding fuel-price hedging contracts, Chief Financial Officer Leonardo Pereira said in the interview after he and Oliveira gave a presentation to investors. The fourth- quarter cost from the hedges will be smaller than the 40.5 million reais of the third quarter, Pereira said.

Fuel Hedges

Crude oil in New York has averaged $60.39 a barrel this year after reaching a record of $145.45 in July 2008. Gol has about 30 percent of its jet-fuel needs hedged in the fourth quarter at $64.25 a barrel, Pereira said.

“What we’ve learned, and what the world has shown, is that you don’t earn money from derivatives,” he said. “Derivatives have to be something to help you protect yourself. We’re going to protect at least 20 percent of the company’s fuel consumption over the next few years.”

Gol has six grounded Boeing 767-300 planes, which it’s considering making available for chartered flights to reduce the $500,000-a-month maintenance fee, the finance chief said. The company reduced the number of aircraft on the ground to six in March from 14 in September 2008, he said. Most of the aircraft contracts expire in 2013.

Snack Fees

The airline in June began charging for snacks and beverages on 14 of its domestic routes, according to its Web site. Passengers get one snack and a nonalcoholic beverage free, and can pay 10 reais for a sandwich, from 3 reais for additional drinks to 15 reais for a sandwich, drink and a snack, according to the Web site.

The company may boost the snack service to 450 flights by July and eventually to 700, after Brazilian clients responded positively, Oliveira said. Gol won’t rule out cost-cutting options such as charging for the use of toilets on board or eliminating check-in desks at airports, he said.

Michael O’Leary, chief executive officer of Dublin-based airline Ryanair Holdings Plc, which posted a profit of 250.5 million euros ($371.9 million) in the second quarter, said in February that his company might start charging passengers to use toilets on its planes.

Gol now gets about 10 percent of its revenue from sources other than tickets and may increase that, Oliveira said. The company won’t charge for baggage, like Ryanair, because of consumer-protection laws in Brazil, he said.

“We plan to increase our ancillary revenue,” the CEO said. “Something we discuss a lot is how will the airport of the future be? If you imagine that with the evolution of technology, biometrics and other initiatives, this could eventually lead to an airport without the need for check-in desks.”

GOL raising fares for the first time in a year as Brazil's economy recovers
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