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GOL Linhas’ Margin Outlook Impresses, Forex Woes Remain


On Nov 22, 2016, we issued an updated report on GOL Linhas Aereas Inteligentes S.A. GOL.

The company’s net profit in the third quarter of 2016 compared favorably with the loss incurred in the prior-year quarter. Revenues, however, declined on a year-over-basis. The company also saw a decline in traffic metricrevenue passenger kilometers (RPK) – the measure of revenues generated per kilometer per passenger. Available seat kilometers (ASK) – the measure of an airline's passenger carrying capacity – decreased on a year-over-year basis. However, the company’s load factor improved by 120 basis points (bps) in the reported quarter. Despite the decline in performance metrics, we are positive on the fact that the company’s long-term debt has decreased from year-end 2015. We are also optimistic about the changes in the company’s existing fleet with improved in-flight offerings.

October Metrics

The company reported a decline in traffic and capacity for the month of October. Passenger count declined too. However, load factor impressed with an improvement of 50 bps for the month of October.

The company continues to face challenges like the strong U.S. dollar and economic slowdown in Brazil and Latin America. However, we are positive on the company’s revised outlook for 2016. Operating margin is expected at 6%, which is at the higher end of the previous guidance of a range of 4% to 6%. Moreover, fleet size is anticipated to be reduced further in 2017, which in turn, should improve capacity utilization. Total supply is now expected to decline 8% instead of a range of 5–8%.

The company faces tough competition from peers like Copa Holdings CPA, LATAM Airlines LFL, and Delta Air Lines Inc. DAL.

Zacks Rank

GOL Linhas currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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