For an airline in a country almost synonymous with economic malaise, Gol sounds awfully cheerful. And perhaps with good reason.
In a presentation to investors last week, Brazil’s largest domestic airline detailed its projections for 2019 and beyond, depicting a much-improved operating environment than the miserable one it has faced in recent years. The Brazilian airline market, after all, hasn’t shown any meaningful growth in six lousy years.
To be clear, things haven’t been all bad for Gol. It started the decade with a double-digit operating margin—as late as 2010, Brazil was still an emerging market superstar, recovering rapidly from the global financial crisis. Rapidly, yes, but only briefly. After growing 7.5% in 2010, Brazilian GDP grew just 2.7% the next year and less than 1% the year after. Gol correspondingly suffered, posting losses in both years—its 2012 losses were particularly severe. Things calmed down, and the airline returned to modest profits in 2013 and 2014. But then came a deep and dark recession that brought back losses in 2015. Gol posted a net loss in 2016 too, although its operating margin was firmly positive, with help from some aircraft sale-leaseback gains. It then posted a double-digit 10% operating margin in 2017, bringing it back to where it was at the start of the decade. In the 12 months through September 2018, margin was again 10%. Even better, management expects its Q4 figure to be no less than 20%, compared to 13% in the same quarter a year earlier.
In fairness, Gol’s Q4 results will include some hefty gains from selling prior-generation B737s at a handsome profit of roughly $10m to $12m per aircraft. But that shouldn’t distract from the company’s recent success, nor justify suspicion about its forward optimism. Gol is doing well for a reason. Many reasons, actually.
Capacity discipline is one. It grew ASK capacity just 3% last year, following 1% growth in 2017. The year before that, it slashed capacity 7% amid Brazil’s bout with lower commodity prices, weaker exchange rates and widespread corruption scandals. Just as importantly, since 2011, total domestic industry ASKs in Brazil declined 1% annually on average, this after growing 17% annually between…
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