Brazil’s low-cost carrier Gol reported a rise in third quarter revenue on increasing passenger demand and “dynamic revenue management” - flexible pricing which allows the company to constantly optimise returns - despite taking a hit for unscheduled maintenance as well as the grounding of its seven Boeing 737 Max aircraft.
Operating revenue at the Sao-Paolo-based airline during the quarter rose to R3.7 billion ($924 million), up 28% from the third quarter in 2018, the airline says in its investor report on 31 October. Gol revised its estimated full-year 2019 revenue up slightly to R13.7 billion and its estimate for 2020 full-year is now R15.5 billion.
Earnings before interest and tax in the third quarter were R692 million and earnings before interest, taxes, depreciation and amortisation margin was 31%. It now expects a full-year margin of 29%, up slightly from previous guidance.
Passenger revenue per available seat kilometre during the third quarter rose 20% to 26 centavos from the third quarter a year ago.
At the end of the quarter, the airline had 125 aircraft in operation, up from 120 a year ago. It plans to have 134 aircraft in service by the end of the year, an increase of 14 over previous estimates. It operated 745 flights per day up from 695 flights in the same period a year ago. Gol operates an all-Boeing 737 fleet.
MAX RETURN
The grounding of the company’s seven Boeing 737 Max aircraft as well as unscheduled maintenance of the older-generation 737NG fleet impacted the third quarter results, executives say, but they would not say by how much. While several US airlines have already quantified their losses, Gol says it is unable to do so at this time.
“It’s difficult to estimate the net effect of all these things, but clearly the Max delays, which have a much greater revenue productivity than the current fleet, and the unplanned maintenance in the older NG models have an effect,” says chief financial officer Richard Lark. “We have to wait until we get on the other side of the Max and the pickle fork issues and then we can provide some visibility on terms of what we have lost on the revenue side.”
In October, the Federal Aviation Administration ordered airlines to inspect so-called “pickle fork” hardware connecting the wings and fuselages of older-generation 737 aircraft which had completed at least 30,000 flight cycles. Structural cracks had been found in 38 aircraft in fleets worldwide.
While the effective cost of fuel has recently declined due to lower Brazilian taxes, these savings were offset by the grounding of the airline’s more fuel-efficient Max fleet.
Gol is assuming its Max aircraft will begin flying again in December, in time for the high summer travel season in Latin America. However, it says it also has made contingencies should the aircraft not return to service in time. The carrier has subleased seven 737NG aircraft, guaranteeing supply for the high travel season which extends through February.
Last week Boeing says it expects the Max aircraft to be recertified in the fourth quarter, and that it hopes regulators in other jurisdictions will quickly follow suit.
“Gol and [Brazilian aviation regulator] ANAC are participating in the various committees, and we are very involved in the process,” chief executive Paolo Kakinoff says. “ANAC is in good position, saying they would act in accordance with the FAA so we do expect a simultaneous release of both agencies at the same time.”
Unlike these expectations of the Brazilian regulator, however, Europe’s EASA has previously said that it will conduct its own in-depth flight tests before allowing the 737 Max to re-enter service on that continent. This could lead to diverging dates for re-certification, and yet more complexity in scheduling the aircraft’s return to service for airlines which plan to fly the aircraft between regions.
The grounding has led to a delay in the company’s plans to roll out more international routes, Lark says. “Expansion will get caught up as soon as we have the Max working again,” he says. The routes - which are all longer-haul connections - will not be introduced until the Max is completely reintegrated into the fleet, he adds.
According to Cirium fleet data, the airline has 144 Max aircraft on order. Lark says on Thursday it expects to have 32 of those flying by the end of 2020.
NO ALLIANCES
Gol’s executives ruled out joining any larger alliance for the moment, after Delta Air Lines terminated its partnership following its announcement in September that it would take a 20% stake in Brazilian competitor LATAM. Kakinoff adds that joining any global alliance would not play to the airline’s current strengths.
“Our behavior from now on is to resume the traditional regional strategy to codeshare with the largest possible number of partners, which gives us a sizeable opportunity,” he says.
Earlier this week Gol and Colombian flag carrier Avianca announced a codeshare agreement that would give each airline easier access to the other’s market.
Kakinoff added that as North American carriers mull sending more flights to Brazil, this could potentially give Gol a huge opportunity. “We could easily double the number of seats available in both ways. This kind of possibility is on the table at the moment and we are analysing it closely.”
TAX RELIEF
Gol managers also say they are optimistic that additional tax relief could also boost the aviation industry in Brazil next year. The government is considering rescinding an $18 international passenger tax which is likely to lead to higher public interest in international travel. Fuel taxes across the country are beginning to go down as well.
“Our network carries more leisure passengers than business passengers and an $18 reduction could be meaningful for them,” Kakinoff says. With Gol selling about 20 million tickets every year for $50 or less, that $18 would make a significant difference to cost-conscious travelers.
