Depreciation of the Brazilian real and weakening corporate demand have impacted Gol's 2014 financial results, mirroring the challenges faced by other South American carriers last year.
Despite growing operating profits and revenue for the year, Gol widened further its full-year net loss to R1.12 billion ($349 million) - a result that the carrier attributed partly to the depreciation of the Brazilian real against the US dollar. The airline, which released its 2014 financial results today, is the last publicly listed Latin American airline to do so for the period.
Currency exchange history data from xe.com shows that the Brazilian real had traded at R0.45 per $1 a year ago, compared with around R0.31 today - representing a decline of more than 30%.
Speaking to analysts today on an earnings call, Gol chief executive Paulo Kakinoff calls 2014 "challenging and highly volatile". A slowing economy in Brazil has also led to reduced corporate travel demand, he adds.
Gol had expected Brazil's gross domestic product to grow in the range of 1.5% to 2% for 2014, notes Kakinoff. Instead, it grew only 0.1%, points out a presentation by Gol executives today.
This has shown in Gol's falling passenger unit revenue and yields. The airline's fourth quarter 2014 PRASK fell to 18.6 real cents, down from 19.3 real cents a year ago. Despite boosting load factors to 79.9% from 75.6% a year ago, yields had declined to 23.6 real cents from 25.8 real cents, Gol's executives say today. On a full-year basis, Gol's yield rose 1.4% to 23.75 Brazilian real cents in 2014.
A recent respite in fuel prices has had little impact on Gol's results. "The windfall from fuel price reductions has been more than absorbed by the real devaluation," says Gol's chief financial officer Edmar Lopes. There is "no room" for the airline to reduce fares just because of lower fuel prices, he adds.
The carrier expects continued softness in the pricing environment "for a while", says Lopes. He declines to provide insight into revenue trends so far in the first quarter of 2015, as the airline expects to release that period's traffic and unit revenue numbers in a few weeks. "But the trend has been that the numbers for yields and PRASK are down on a year-on-year basis," he tells analysts.
For 2015, Gol plans to keep domestic capacity flat. It slashed domestic capacity 1.7% in 2014, within a range of a 1% to 3% reduction it had earlier guided. The carrier is targetting an operating margin of 2% to 5% in 2015.
The challenges the airline faced in 2014 are not exclusive to just Gol. Depreciation of the Brazilian real also made its presence felt at Gol's rival TAM. TAM's parent LATAM Airlines Group reported a $110 million net loss for 2014, after incurring foreign exchange losses of $130 million due to depreciation of the Brazilian real. LATAM is taking steps to reduce TAM's balance sheet exposure to the real.
Like Gol, LATAM reported a dip in corporate traffic in the fourth quarter at TAM which the airline group attributed to political uncertainty and lower GDP growth forecasts.
The weaker environment in Brazil appeared to be a contributing factor in Brazilian low-cost carrier Azul's repeated postponement of its initial public offering (IPO), which has yet to get off the ground since the airline's maiden IPO filing back in 2013.
Outside of Brazil, LATAM also faced pressure on yields at its subsidiaries in Spanish-speaking countries. It noted a 14.6% depreciation in the Chilean peso and 39.1% depreciation in the Argentinian peso in the fourth quarter of 2014.
The other major Latin American carrier, Avianca, also saw falling yields in 2014. They tumbled to 11.9 cents in 2014, down 4%. In the fourth quarter alone, yields fell 10% to 11.7 cents.
Even Copa Airlines, which has traditionally been the financially strongest among the Latin American airlines, reported that overall yields fell 4.4% in 2014 - a result that the Star Alliance carrier attributed to weak yields in South America.
Source: Cirium Dashboard
