Gol attempts to improve its fortunes in 2H2012 as market conditions continue to weaken

Efforts by Brazilian carrier Gol to convince the industry at large that its weak financial condition could turn a corner during 2H2012 so far have drawn little success. After the carrier recorded a 2Q2012 loss of BRL715 million (USD354 million) ratings firm Standard and Poors (S&P) opted to downgrade the carrier's long-term corporate credit rating, concluding the company's business risk profile as weak and highly leveraged. While the carrier's Aug-2012 performance showed slight promise with a 1% rise in yields, pricing traction in the Brazilian domestic market remains weak, which will continue to pressure Gol's results well into 2013.

Unlike its Brazilian rival TAM, which has a more diversified network with a larger number of international flights (and now has more network leverage through its merger with LAN), Gol's focus until the last few months has been solely on the Brazilian domestic market. Yields in Brazil began weakening in 2011, and the country's macroeconomic conditions have continued to diminish throughout 2012 as Brazilian GDP growth forecast are now 2% compared with previous estimates of 4%. It is a drastic drop from the 7.5% GDP growth posted by Brazil just two years ago.