Brazil’s Gol is taking a series of measures to keep costs in line as it steels itself for wider losses this year.
The airline will adjust its network, defer aircraft deliveries and freeze hiring, as it informs investors that it no longer expects a positive operating margin for 2015. Gol posted a negative 1.2% operating margin for the first nine months of 2015, and now forecasts that its full-year operating margin will be flat or down 2%. It had previously anticipated a positive 2% to 5% operating margin for 2015.
For the first nine months of 2015, the airline has already reported a R88.5 million operating loss ($23.3 million), flipping from the R334 million operating profit it had reported in the same period in 2014.
Foreign exchange losses amounted to R2 billion for the first three quarters of the year, Gol’s financial statements show. The airline racked up R3.16 billion in net losses for the first nine months of the year, compared with R486 million in net losses for the same period in 2014.
The airline’s executives continued to blame depreciation of the Brazilian real and the weak domestic economy for its poor financial performance. Even though airlines worldwide have generally benefitted from lower fuel prices this year, Gol’s chief executive Paulo Sergio Kakinoff said in an earnings call today that much of the decrease was offset by depreciation of the Brazilian real.
Gol is in the midst of making changes to its network to more closely align with travel patterns of a Brazilian population now more inclined to stay home or travel within South America, as holidays to the USA become more expensive with the strong US dollar.
In addition, corporate travel demand has slowed in the recent year, putting Gol at a disadvantage, says Kakinoff.
“Gol has built in the last three years the most attractive and comprehensive network for corporate travel in [Sao Paulo] Guarulhos and Congonhas,” Kakinoff said in an earnings call today. “But that demand has been down 35%.”
The carrier is now focusing on adding new routes from Congonhas to coastal cities in Brazil that are popular destinations for leisure travellers in the Southern Hemisphere summer. These include Salvador, Porto Seguro and Florianopolis.
Gol also plans to add new flights from Viracopos-Campinas to cities like Natal, Fortaleza, Salvador, Maceio and Recife.
“We see nice sales trends on these routes,” says Kakinoff.
On the international front, Gol is switching its Miami and Orlando flights to seasonal service from 19 February. Kakinoff says the flights will operate mostly from November to February, as well as June to August.
He notes that fares on the routes have fallen recently, alluding to competitive pressure from rival Azul which began its inaugural international service in late 2014 to Orlando and Fort Lauderdale from Viracopos-Campinas.
Despite the pullback in US service, Kakinoff says the carrier will continue to work to increase its US-denominated revenue through its codeshare with partner Delta Air Lines.
Outside of the USA, Gol is studying Havana as a potential new destination to add to its network in 2016, and is considering pulling out of Caracas. Gol operates weekly to the Venezuelan capital. Airlines in recent years have encountered difficulties in repatriating revenue from Venezuela, and several have reduced their operations to the South American country.
South of Brazil, the airline is considering launching new service to Buenos Aires from other northeastern Brazilian cities. The airline already serves the Argentinean capital nonstop from Fortaleza and Natal.
“More leisure travellers are choosing to fly in South America and within Brazil than any other year before,” says Kakinoff. “This perfectly matches our network strategy.”
The airline expects to finish its network transformation by about mid-2016, indicating that more changes will be announced in the coming months.
FLEET CHANGES
Gol has reached an agreement with Boeing to defer 11 aircraft deliveries scheduled for 2016 and 2017 to 2027, says Kakinoff. Instead of taking delivery of 15 aircraft, the airline will take only four during the period.
The airline will also “intensify” its subleasing programme during the low season in the Southern Hemisphere, and will sublease 12 aircraft in 2016 to foreign carriers compared to only seven in 2015.
“This will help us reduce expenses like rental payments, maintenance and other items by lessors,” says Kakinoff.
An all-737 operator, Gol has seven 737-800s and 69 737 Max 8 aircraft on order, Flightglobal’s Fleets Analyzer shows. It estimates it will have a fleet of 140 aircraft at the end of 2015.
Kakinoff declines to give guidance on how the airline’s capacity will differ in 2016, but notes that the outlook for the industry remains the same or could be marginally better next year. He adds that Brazilian airlines will likely continue to reduce capacity in the year ahead.
Gol will reduce domestic capacity by 5% to 7% in the fourth quarter, resulting in flat or down 1% domestic capacity for the full year.
Besides network and fleet changes, the airline has also frozen hiring, says Kakinoff. Employees who leave will not be replaced, and the carrier also plans to streamline its executive management structure.
Source: Cirium Dashboard
