GOL Linhas Traffic Surges - Analyst Blog

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Brazil's largest low-fare airline operator, GOL Linhas Aereas Inteligentes S.A. (GOL) reported passenger traffic for December 2010 in comparison with December 2009. Total traffic surged 4.5% with domestic traffic increasing 4.7% and International traffic up 3.1% year over year.

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 have also reduced to their 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 $9.1 billion in 2011.

International traffic was also influenced by the continuous increase in the frequency of flights to the existing high-demand markets and the addition of new routes in the Caribbean and Argentina.

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 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.

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



GOL LINHAS-ADR (GOL
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LAN CHILE-ADR (LFL
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TAM SA-ADR (TAM
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