Gol Starts to Rebound as Brazil’s Vaccination Rate Climbs
Brazilian discounter Gol is confident the country has turned the corner from the depths of the Covid-19 pandemic and expects business travel to return to its pre-pandemic levels by the first quarter of next year. In the meantime, the carrier plans to maintain the strategy of strict capacity discipline that saw it through most of the crisis.
Brazil was hit hard by a devastating wave of illness and death at the end of last year and the first quarter of this year — the airline industry’s peak period in the Southern Hemisphere. But since then, the viral transmission rate has fallen by 2 percent per day since the end of June, a rate that the country’s public health ministry believes will continue. The São Paulo region, which generates one-third of the country’s economic activity, is expected to lift all Covid-related restrictions in the third quarter.
Unlike in the U.S., there is no widespread opposition to the vaccine, and the country has a long history of mass inoculation, CEO Paulo Kakinoff noted. The country has stepped up its vaccination program, with the goal of fully vaccinating 90 percent of the population by the fourth quarter. Despite having started its vaccination program later than the U.S., Brazil is expected to have a larger percentage of its population vaccinated by October.
This bodes well for Gol’s business. The carrier already has seen demand bounce back from the nadir of the country’s most recent wave of Covid-19. Second-quarter capacity was up more than 300 percent from the same period in 2020, and traffic, measured in revenue passenger-kilometers, was up almost 350 percent. Gol flew to 126 markets in the second quarter, up from 28 last year, but down from the 159 markets it served in the first quarter, during the Southern Hemisphere’s peak season. By the end of the year, Gol plans to operate to all of its domestic stations.
By the end of the year, Gol will resume international flights within South America and to the Caribbean. The carrier also plans to re-start flights to the U.S., but Kakinoff noted the resumption of Gol’s international network will depend on travel restrictions and the state of the pandemic by the end of the year.
The carrier mixed up its network during the pandemic, mainly to shift focus from business markets to leisure and visiting friends and relatives (VFR) markets. It operated fewer point-to-point flights, favoring connections over its hubs, particularly on domestic North-South itineraries. This strategy is likely to continue as the carrier emerges from the worst of the crisis, Kakinoff said. “We are now even leaner than we were before.”
Brazil’s economy has also turned the corner, with gross domestic product expected to grow by almost 8 percent on an annualized basis in the second half. Brazil’s economy is not services- or manufacturing-driven, like those of the U.S. and Europe; rather, it’s a resources economy. As economic activity ramps up worldwide, demand for Brazil’s raw materials is expected to increase.
This will help buoy Gol’s business traffic. Before the pandemic, large corporations — primarily, agribusiness, mining, and petroleum companies — fueled Gol’s business travel market. Those companies are “not present” in Gol’s bookings now, Chief Financial Officer Richard Lark said. These companies, however, typically rely on in-person site visits, so Lark believes bookings will return as restrictions lift. Gol expects large corporate travel to pick up in the fourth quarter and be almost back to pre-pandemic levels in the first quarter of next year.
Regarding Gol’s partner American Airlines’ investment in Chile’s JetSmart, Kakinoff was positive. “This strengthens our position,” he said, adding that “we welcome the further investment by American Airlines in our region.”
Even before the pandemic, Gol had suffered an exogenous shock in the form of the Boeing 737 Max grounding, which sidelined an aircraft key to its expansion. Lark noted that it is only now that Gol’s fleet strategy is starting to return to where it had planned to be three years ago. The carrier now has 10 737 Max 8s in its fleet but could add as many as 20-30 over the next 18 months, Kakinoff said. At the end of the quarter, Gol had 127 aircraft in its fleet and expects to have 131 by the end of next year, factoring in retirements and lease returns. The carrier has orders for 73 -8s and 22 -10s.
“Things can always get worse, considering the external circumstances, but it’s reasonable to believe the future will be better,” Kakinoff said.
Gol reached cash burn breakeven by the end of June. The carrier reported second-quarter revenues of 1 billion reais ($197 million), a 187 percent increase from the same period in 2020. Cargo and loyalty contributed another 141 million reais to the carrier’s revenues. Gol reported an operating loss of 810 million reais.Subscribe Now to Airline Weekly