Brazil's Gol plans to grow domestic capacity modestly in 2019, but says it retains flexibility to boost its fleet size in the event that industry consolidation leads to a capacity shortfall.

The Sao Paulo-based airline will grow domestic capacity by 2-4% in 2019, with international capacity expected to increase by 35-45%. System-wide capacity is expected to grow by 6-10%. Gol plans to take delivery of 17 737 Max aircraft in 2019, said chief executive Paulo Kakinoff on an earnings call on 28 February.

Gol's planned capacity growth for 2019 is higher than in 2018, where it grew system-wide capacity by 2.9%, split between domestic capacity growth of 2.3% and international capacity growth of 7.6%.

Faced with higher fuel prices and uncertainty following presidential elections in Brazil in October 2018, Gol improved upon its fourth-quarter financial results but ended 2018 in the red after heavier currency exchange losses.

The airline's fourth-quarter operating profit rose 74% to R672 million ($175 million), with revenue up 10.1% to R3.2 billion. Operating costs in the period were down 0.3% to R2.53 billion. The airline reported a net profit of R580 million, improving upon its net profit of R62.2 million in the fourth quarter of 2017.

For the full year of 2018, Gol posted an operating profit of R1.4 billion, up 41.5% from its 2017 operating profit of R989 million. Operating revenue was up 10.5% to R11.4 billion while operating costs increased 7.2% to R10 billion. Higher losses on currency exchange, however, helped push Gol to a net loss of R780 million in 2018, reversing from a net profit of R378 million in 2017.

Gol's passenger unit revenue improved by 7.7% year on year in the fourth quarter of 2018 to 23.87 centavos and grew 8% in 2018 to 22.13 centavos. Unit cost excluding fuel fell 19.4% to 11.2 centavos in the fourth quarter and declined 7.5% to 12.78 centavos in the full year. When adjusted to exclude one-time events such as gains from sale-and-leasebacks, the airline's unit cost increased 3.9% to 14.45 centavos in the fourth quarter and rose 2.4% to 14.14 centavos in the full year.

Gol chief financial officer Richard Lark attributes the airline's cost performance to an ongoing fleet renewal with the Boeing 737 Max. The airline operated six 737 Max 8s as of the end of 2018 from an in-service fleet of 121 aircraft.


Kakinoff says the airline is "fully prepared" to grow or reduce its capacity by 4% "in the very short term", when responding to analysts' questions on potential significant changes in the domestic landscape.

Avianca Brazil, the country's fourth-largest domestic carrier, filed for bankruptcy protection in December and questions have remained over its future in the Brazilian market. Azul, the third-largest domestic airline, has confirmed that it has agreed to a non-binding offer for Avianca Brazil's assets, including 30 A320 family aircraft, the airline's air operator's certificate and 70 pairs of airport slots.

The non-binding offer from Azul is subject to approvals from regulators, as well as Avianca Brazil's court-supervised restructuring process.

Kakinoff says the airline has flexibility to extend leases to increase the number of aircraft in its fleet if needed, but stresses that the airline will not jeopardise the cost restructuring programme it began a few years ago.

Gol has issued guidance for unit costs excluding fuel of 13 centavos for both 2019 and 2020.

The airline is seeing strong demand so far in the first quarter, with Lark saying Gol has observed about a 15% increase in sales in February. The Brazilian Carnival, which falls in March this year instead of February last year, has benefited demand in the country, he notes.

"That was a positive for extending the summer travel season here in Brazil an additional month," says Lark.

Gol has seen a general "uplift" since the fourth quarter of 2017, he notes, although demand stumbled from mid-2018, when a truck drivers' strike disrupted flights at several Brazilian airports and demand remained depressed until the elections.

"Pretty much since the elections were over… the certainty… was installed," says Lark.

Gol guidance is for an operating margin of 18% for 2018, up slightly from the previous forecast of 17%. It also revised upward its operating margin guidance for 2020 to 19% from 18%.

The strength in demand so far in the first quarter is mostly organic, says Kakinoff, when responding to questions about any potential shifting of market share since the troubles of Avianca Brazil began. "If you see their competitive deterioration it is so far quite marginal," he says. "We will continue to react rationally, even [if] facing a further disruption in the market."


As the airline begins 2019 with a healthy demand outlook, it is feeling optimistic about its US flights, which resumed in November 2018. Gol is offering services to both Miami and Orlando from Brasilia and Fortaleza, operating with the 737 Max. Kakinoff says the flights are being marketed as one-stop connections via Brasilia, and have been popular with travellers originating in Sao Paulo Congonhas airport, which is closer to downtown Sao Paulo than Guarulhos airport.

"Two-digits load factor" originates in Congonhas, Kakinoff tells analysts. "We have less than 1h connecting time in Brasilia, which makes this product pretty attractive to the travellers living in the neighbourhood of Congonhas airport, which [is] the highest portion of the local market," he adds.

Lark points out that the connecting time in Brasilia is shorter than the cab ride from downtown Sao Paulo to Guarulhos, which can take hours depending on traffic.

Source: Cirium Dashboard