Gol CEO explains new strategy

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Gol CEO Constantino de Oliveira Junior still has long-term ambitions for the Varig brand internationally, despite scaling back its operations to just three medium-haul routes.

In October, Gol pulled the plug on all routes operated by subsidiary VRG, which has been using the Varig name since Gol acquired the flag carrier last year, except for Sao Paulo to Bogota, Caracas and Santiago. In an interview with ATI sister publication Airline Business Magazine ahead of the start of today's ALTA airline leaders' forum in Cancun, Oliveira says he retains long-term ambitions for the Varig brand internationally and is not yet ready to confine the once proud brand to the history books.

"We plan to use this brand on our longer flights in South America and are working to strengthen it, so that, in the future, we may be able to resume Varig's long-haul operations in a more structured and competitive way," he says.

Oliveira says cutting almost the entire VRG network was "a tough but responsible decision". He cites volatile fuel prices, a lack of new generation aircraft availability and lower economic growth in the US and Europe for the repositioning of the carrier.

"We believe those actions were necessary to maintain the company's continued success and sustainability," Oliveira says.

He explains Gol wanted to hold onto the Varig brand for only three routes rather than stop using it altogether because it is still "highly regarded" internationally.

While Gol and VRG formally became one carrier in October and the two are now operating under a single certificate, the company has decided there is value to continue using the Varig brand in the Bogota, Caracas and Santiago markets. Oliveira says the passengers on these flights "are predominantly business travelers and prefer more complete service - a 'Varig' characteristic."

Gol began stripping back long-haul flights operated by VRG in January, saying they were not sustainable. In June the last of the six routes that were made possible by Gol's 2007 acquisition of VRG was wiped off the map. In October Oliveira decided to pull the plug on all VRG domestic flying, leaving it with only three medium-haul international routes within South America.

Gol, which historically has been highly profitable, also has had a difficult year financially. In August it reported a R172 million ($102 million) loss for the second quarter and earlier this week it reported a R294 million net loss for the third quarter

Despite all the setbacks, Oliveira says he is not second-guessing Gol's decision to buy the remnants of the ailing flag carrier.

"We've gained a lot," Oliveira says of the acquisition. "We can count on a highly trained and customer service-oriented team. We've gained the know-how of Brazil's most experienced airline. We've also extended the Smiles mileage program - the largest in Latin America, with over 5.9 million members - to Gol. In addition, we now occupy even more space in the country's major airports."

Gol faces intense competition from TAM, which now has over 50% of the domestic market, and will also have to fend off a new competitor next year in Azul, a new low-cost carrier being established by JetBlue founder David Neeleman. But Oliveira is confident Gol is again in a good position and says it is "ready to compete" against Azul.

"The Gol brand serves 49 destinations in Brazil. That's more than any other Brazilian airline. We have a strong brand, a new, enhanced product, and we believe the new network will improve load factor levels by allowing the company to increase offerings in markets where it has consolidated operations while also allowing for new connections between previously unlinked cities," he says.

"We believe that 2009 will be a challenging year for air transportation in Brazil, due to the worldwide economic environment. But with the changes we recently made in the company - network integration, merging our subsidiaries into one airline, extending the Smiles program to all the company's flights, and onboard service enhancement - we believe that we are in a very good position to compete in the domestic market."

While Gol is far from repeating its performance of 2004 and 2005, when its net margin exceeded an incredible 19%, Oliveira says the company still operates "with the same fundamentals we had in 2001, when the company was launched.

"The fundamentals of our low cost operations are sustained by the pillars of our business strategy: high aircraft utilization, the intelligent use of technology, a modern and standardized fleet, a focus on Internet sales and a paperless ticketing system. Today, however, we are larger and more solid, ready to compete and face the challenges the industry is facing."