Brazilian low-cost carrier Gol has met its target of an operating profit in the first quarter of 2013, in a positive sign that the carrier could end this year in the black following two years of losses.
The airline reported an operating profit of Brazilian reals (R$) 101 million today ($504 million), improving upon the R$7.3 million operating profit it posted in the first quarter of 2012.
While Gol widened its first quarter net loss to R$75.3 million, the airline made gains in unit revenues and yields. Passenger revenue per available seat kilometre (PRASK) was up 12.4% during the quarter and yields grew 13.5% to 23 Brazilian cents.
Gol's chief executive Paulo Sérgio Kakinoff attributes the result to the airline's strategy of cost and capacity discipline, coupled with a renewed focus on growing yields.
The carrier's improved financial showing is no doubt encouraging following three straight quarters of operating losses and two consecutive years of operating and net losses in both 2011 and 2012. The airline is hoping 2013 could reverse that trend, following a tumultuous 12 months in which Brazilian airlines struggled to rein in capacity growth.
Snapshot of Gol's recent financial results
||Operating proft / (loss)
||Net profit / (loss)|
In the past year alone, Gol saw a change in leadership and completed its acquisition of Webjet, only to shut it down months later. Kakinoff, formerly Volkswagen Group's president of Audi Brazil, took over the helm of Gol from Constantino de Oliveira Junior in July at a time when the airline was being hammered by high fuel prices, the depreciation of the Brazilian real and the weakening Brazilian economy.
The carrier also went on to incur costs from the shutdown of Webjet, which it decided to wind down in November 2012 - a decision that was met with much uproar from the 850 Webjet employees that were laid off. Gol's decision was announced just a month after Brazil's competition watchdog CADE authorised the acquisition of Webjet, which Gol first unveiled in July 2011.
Gol is still in the process of returning or selling Webjet's Boeing 737-300s, which are no longer operating. The carrier still has 15 737-300s as of 31 March, of which nine are leased and six are owned. Gol says the sale of the six aircraft is currently being negotiated, while it estimates that all nine leased aircraft will be returned by the end of the first half of 2013.
Eliminating the less fuel efficient 737-300s from its fleet has helped to reduce fuel consumption and contribute to its improved first quarter performance, says Kakinoff in an earnings call today.
But a central focus in Gol's rationalisation strategy is built around wide cuts in domestic capacity and reductions in staff headcount as it seeks to lower costs and improve yields. Overcapacity has long been a concern in the Brazilian domestic market, although the shutdown of Webjet has helped ease these concerns. Still, domestic capacity among Brazilian carriers fell almost 8% in the first quarter of 2013, figures from Brazil's civil aviation authority ANAC show.
Gol, by comparison, slashed domestic capacity by 15.7% in the first quarter as traffic rose 15.5%. The airline aims to cut domestic capacity by about 7% for the full year of 2013, it says.
Besides reining in capacity, Gol cut its staff strength by 20% to more than 16,000 employees, down from more than 20,000 in the first quarter of 2012. The airline also benefited from a change in government tax policy, which included the civil aviation industry in a programme for payroll tax exemption. As a result, salaries and wages per available seat kilometre fell 20% during the first quarter, says the airline.
Gol's chief financial officer Edmar Lopes estimates that the tax benefit translates into R$20 million of cost savings that will recur every quarter in 2013. "We are running at a different level for labour," he says in an earnings call today.
The airline posted cost per available seat kilometre excluding fuel of 8.71 Brazilian cents in the first quarter, a result that Kakinoff says is the lowest in recent quarters.
Gol is projecting Brazil's gross domestic product to grow in the 2.5% to 3.5% range in 2013, but the airline's executives sounded a note of caution in today's earnings call on this. Lopes says demand has been "very soft" in recent weeks and the carrier is "a little bit skeptical" that GDP growth could even hit 2.5%, although he adds it could be too early to tell. Lopes notes that fuel prices have moved in the airline's favour, which could help offset a weakening in demand.