GOL Impresses With Traffic Rise Of 6.4% In May - Analyst Blog

Leading Latin American airlines GOL Linhas Aereas SA GOL posted solid traffic results for May 2014. Revenue passenger kilometers or RPK – implying revenue generated per kilometer per passenger – for the month increased 6.4% from the year-ago month to 2,913.6 million. Both domestic and international RPK showed an improvement of 4.6% and 23.1%, respectively.

Available seat kilometers (ASK) – that measures an airline's passenger carrying capacity –decreased 5.7% year over year to 3,909.0 million. Home ground capacity deteriorated 6.7%, while on the international front, ASK improved 2.4%.

Domestic and international load factor increased 8.2 basis points (bps) and 11.5 bps, respectively, while consolidated load factor increased 8.4% to 74.5%. Weak domestic supply as compared to high demand induced the high level of load factor for the month of May.

In the first five months of 2014, GOL's consolidated RPK improved 12.4% while capacity deteriorated 0.8% leading to a load factor growth of 890 bps to 75.8%.

However, the biggest impediment to GOL's 2014 growth is the weaker-than-expected GDP (gross domestic product) growth rate in Brazil. World Bank expects the Brazilian economy to expand a mere 1.5% this year. Additionally, poor quarterly performance continues to hurt the carrier.

With the 2014 football world cup, one of the biggest sporting extravaganzas, already underway, Brazil is expected to get around 600,000 international visitors in addition to 3 million domestic fans this year, presenting a big opportunity for passenger carriers like GOL. Further, Rio de Janeiro will also host the 2016 summer Olympics, providing yet another long-term growth impetus.

To tap these potent opportunities, GOL recently announced an exclusive strategic partnership with European giant Air France-KLM SA, to expand its operations between Brazil and Europe. We believe this should significantly help improve its international performance.

GOL – which operates with other industry players such as LATAM Airlines Group S.A. LFL – has a Zacks Rank #3 (Hold). Better-ranked stocks within this sector include Southwest Airlines Co. LUV and American Airlines Group Inc. AAL. Both carry a Zacks Rank #1 (Strong Buy).