Gol

With Recife-Lagos route, Gol could join Ethiopian in exploring under-served Brazil-Africa market

Lagos-Recife and Lome-Rio de Janeiro are risky routes to launch but if successful they could usher in a new era for the under-served Brazil-Africa market. There is huge potential for new services linking Latin America and Africa but airlines from both sides will need to offer a multitude of connection options and have the right partnerships in place for pioneering routes to succeed.

Direct links between Latin America and Africa have traditionally been limited. But the Brazil-Africa market is poised for rapid growth, particularly as the Brazilian government promotes more trade with Africa.

Several carriers, including Ethiopian Airlines and Brazil’s Gol, are eager to tap into the growing demand. Ethiopian is launching three weekly flights to Rio de Janeiro and Sao Paulo via Lome on 1-Jul-2013. Gol aims to launch three weekly flights from Recife in northeast Brazil to Lagos in Nigeria by the end of 2013.

Azul's IPO is at a challenging time for economic and traffic growth in Brazil - but offers potential

Nearly five years after inaugurating service, Brazilian carrier Azul is capping off its rapid and highly successful growth with a planned initial public offering. Azul, led by former JetBlue founder and chief David Neeleman has quickly built up a position of strength in the domestic market place through a strategic acquisition it executed during 2012 of fellow Brazilian regional carrier TRIP.

The combination helped Azul flesh out its network and build what it hopes is the necessary scale to withstand the changes its has witnessed in the Brazilian market place during its brief history, ranging from significant growth to a slowdown in traffic expansion as the country’s GDP has slowed during the last couple of years.

The timing of the decision by Azul’s management to take the company public is interesting given that Brazil’s second largest carrier Gol recently warned that inflation in Brazil keeps rising and that it is uncertain if the country will attain its projected 2.5% GDP growth during 2012.

But in making its case to potential investors Azul is attempting to make clear distinctions between itself and Gol by citing yield advantages and merger synergies of BRL200 million (USD96 million) to BRL300 million (USD144 million) during 2013.

LATAM Airlines Group continues to battle pressure in long-haul and Brazilian domestic markets

Weakness in long-haul markets from Brazil continued to pressure LATAM Airlines Group during 1Q2013 as competitive capacity increases triggered depressed loads and unit revenues in its international network. But LATAM’s efforts to restore strength in the Brazilian domestic market and the relative strength in the group’s Spanish speaking companies should help to offset some of the continuing pressure in LATAM’s international network.

The company’s attempts to bolster international service during the last year to offset some of the continuing weakness in the Brazilian domestic market have faltered somewhat due to competitive capacity increases by American and United in the US-Brazil market, and LATAM’s own expansion of supply in the market. The company’s overall capacity increase in its international markets during 1Q2013 was 12.3%.

Gol shows some signs of financial improvement despite posting a 1Q2013 loss

Brazil’s second largest carrier Gol recorded mixed fortunes during 1Q2013 as its overall losses widened year-over-year but yields and unit revenues improved at what appears to be at the expense of load factor. After recording annual losses for the last two years Gol is hoping an aggressive capacity reduction in the Brazilian domestic market place and a significant reduction in its workforce will help the carrier slowly improve its fortunes.

But Gol faces challenges in achieving its turnaround as company management believes it is uncertain that Brazil will record 2.5% GDP growth in 2013 while inflation is rising. The carrier feels positive about its position heading into the slow season in South America, but the timing of a full recovery for the carrier seems far from uncertain.

Brazil outlook for growth dims as domestic market shrinks in 1Q2013, driven by cuts at Gol

Brazil’s domestic market is showing more signs of a slowdown after shrinking by 1% in the first quarter. Load factors are improving, an encouraging sign for profitability, but growth has taken a back seat, driven by the capacity cuts at Gol and TAM.

The country’s international market, meanwhile, is showing signs of over-capacity as load factors slipped in 1Q2013. The key Brazil-US market has particularly become over-saturated.

The Brazilian international market will likely post high single digit growth in 2013. The domestic market should also still grow, albeit modestly, for the full year. But Brazil’s once red hot aviation sector faces a challenging 2013. As Brazil is by far the largest market in the region, the slowdown will drive down overall Latin America growth figures.

Gol pledges a financial turnaround as it records a second consecutive annual loss, of USD745 million

Brazil’s second largest carrier Gol was unable to turn its fortunes positive in 2012 and actually widened its loss for the year. Despite its attempts to combat the cooling Brazilian domestic market through marked capacity cuts and turning some of its attention to international services, Gol recorded a BRL447 million (USD222 million) loss for 4Q2012 and a BRL1.5 billion (USD745 million) negative result for the full year.

Gol believes the changes it has made with respect to its domestic supply and various cost-containment schemes should produce a positive operating result for 1Q2013. But the carrier made similar pronouncements during 2012 as it recorded four quarters of unprofitability, so the pressure is mounting on management to put some grit behind a pledged turnaround.

Unlike its major rival TAM, which is now part of the powerful LATAM Airlines Group, Gol does not have the benefit of large network to help it diversify from areas of weakness to more robust regions. Both Gol and TAM during 2012 had to combat softening demand that resulted from Brazil’s slowing economy. During 2012 GDP growth in Brazil was revised down to 2% from 4%, and during 2013 Gol is projecting growth of 2.5% to a maximum of 3%. This compares to GDP growth of approximately 7.5% growth in Brazil during 2010.