CEO interview with Gol, President & CEO, Paulo Kakinoff

Transcript

Lori Ranson:

Hello everyone. Welcome back to Capital Live. I'm Lori Ranson, senior analyst of the Americas, and we're very happy to have Gol CEO with us today, Paolo Kakinoff, thanks so much for joining us

Paolo Kakinoff:

Thank you Lori.

Lori Ranson:

First off. Can you just give us an update on the domestic market? It seems like demand has picked up over the last couple of months after the last wave sort of subsided. So just give us an update on, on where you see trends going for the rest of the year and early next year.

Paolo Kakinoff:

Sure. Well, actually in Brazil we are lucky because the domestic market has recovered much faster than in any other geography. You see that we are already operating at a level of 70% in comparison to the pre pandemic levels. And we do expect that by December and January, this year, the busy and high season, we will be probably operating at a level close to a hundred percent what we get or what we got pre pandemic. I am talking about the domestic market only international view take probably longer than expected due to the several restrictions is still in place.

Lori Ranson:

And is competitive capacity is sort of behaving rationally in Brazil's domestic market at the moment?

Paolo Kakinoff:

It's really hard to say that because you know, every month has been, sorry can you ask again?

Lori Ranson:

Sure can. How do you see competitive capacity sort of progressing at the moment? Is it, rational? Is it irrational? Is it coming back too fast?

Paolo Kakinoff:

I couldn't say that it is a hundred percent rational and I think this is because the market is too pretty much volatile. So I do believe that our competitors are facing more difficulties to adjust to quick adjust their capacity to the demand. So there is a kind of inertia which takes more time in their case to rapidly adjust the offer in comparison to the demand. And it does affect the market indeed, but I believe that generally speaking, all the industry is seeking for rationality. So I do believe it is just a matter of mismatch between the market willingness to adjust the capacity adequately to the demand levels, which has been, as I said, pretty much volatile the moment.

Lori Ranson:

Gol recently you mentioned that corporate demand is finally starting to sort of lift off bottom. And can you give us an update on that in terms of where you see that progressing over the next few months and maybe which industries are, are returning to travel first in Brazil?

Paolo Kakinoff:

There are some, some businesses, those are pretty strong, especially in Brazil. So the services segment, the agricultural business, oil and gas, all those segments are supposed to resume their pre-pandemic business troubles behaviour profile as we had before. And I think that we might be surprised because already for two weeks, we are seeing the business demand climbing pretty fast. So I don't believe that the so-called new normal will bring us to a much different scenario than we had before. Certainly a portion of the previous reasons to buy a business trip ticket is gone for good. I mean, we can see that some business, some meetings we will be replaced by technologies like this one we are utilised in right now, but it seems to be a much smaller portion of that specific market demand than we did expect when the crisis reached its peak. So we are pretty optimistic about that. And we might be surprised by the beginning of the next year, mainly due to the large corporations returning their pre pandemic business travel profile.

Lori Ranson:

So you think it could be pretty close to pre-pandemic levels by midyear 2022?

Paolo Kakinoff:

Up to three months ago we were forecasting that one third of that demand would be gone for good. I think that was a too conservative approach. We might be now talking about 10 to 15% and mainly along the next months, we have the chance to see that we are going to have the chance to see that the market coming close to the pre-pandemic level. And that's because there are several trips, those were not possible to happen during the pandemic. And those restrictions will now unleash a [inaudible 00:05:43] potential, but we do not know by the end of the next year where the market will really stabilise itself.

Lori Ranson:

Right. And you're in the midst of relaunching some international services that lead to Cancun and [inaudible 00:06:06]. How do you see demand trending in those markets as you launch? Is there as much pent up demand for that kind of international travel as we see here as markets open up in the US, do you see that as you add back some international destinations?

Paolo Kakinoff:

The international demand has not been perceived at the moment so strong or are as strong as a domestic, but for those markets who have already resumed over operate such as [inaudible 00:06:40], as you said, Cancun, Mexico, the Dominican Republic, and now Buenos Aires. We are seeing quite robust demand for tickets. So we don't believe that those flights, we will surfer due the lack of passengers. And for the other international roots, we will be gradually relaunching all of them along the first and second quarter next year, with or highlighting the North American market, which is expected, be much stronger than they are today by the beginning of the second quarter. This is exactly when we believe that our flights from Brazilia to Florida will be available to our customers again.

Lori Ranson:

Yeah. A lot of US carriers that are serving Latin America recently sided really strong bookings to and

from Brazil as the US opens up. So I'm sure you'll see some benefit from that going into next year as well, right?

Paolo Kakinoff:

Yeah. Yeah. We have a strong partnership with American Airlines, which is the largest North American airline operating in South America. In combination with Gol, we have by far the largest America's network with regards to the airline business. And therefore we are now holding back the reintroduction of our on flight [inaudible 00:08:18] in order to boost that partnership. And then later we have also Gol operating from Brazilia to Miami where currently American Airlines is not offering any kind of direct flight.

Lori Ranson:

You mentioned the American partnership, which is interesting. And there's a lot of interesting partnership dynamics that are changing in Latin America. If you look at American and Jet Smart, you look at the recent Interline agreement between Viva and Viva Airbus. And just from your perspective, how do you see partnerships evolving in the region? Do you see more of those types of unconventional partnerships between sort of low cost carriers and major airlines?

Paolo Kakinoff:

I believe that consolidation is a clear trend in our industry and that phenomenon might be boosted by the outcomes produced during the pandemic. We have more and more companies all around the globe talking about partnerships, and I think that's in South America, that trend will continue. So I think that we might see more partnerships of this nature happening along the next two or three years.

Lori Ranson:

I want to turn to sort of vaccine mandates because it's, it's sort of a big issue here, and I know that Gol had its own vaccine mandate for employees. So can you tell us how you approach that and maybe what percentage of employees are, are vaccinated at the moment?

Paolo Kakinoff:

Yeah. We also made the vaccination, the immunisation mandatory to all our employees. And luckily in Brazil, we have a very high level of acceptance from the population overall to, to get the vaccines, to be immunised. And just to give an idea out of our 14,000 employees, only 40 refuse to be vaccinated. So all of them, they are now not involved with the operation at all. And there are some legal disputes, whether the company care can or cannot dismiss those employees, but we made pretty clear to everyone that we do not accept any kind of not vaccinated people being exposed to our customers. So I think this is the right decision to be taken in order to protect everyone. And, and also to, to have the end of this pandemic something material and not a wishful thinking that cannot be delivered if not by the engagement of everyone. So I don't see an acceptable reason for have anybody refusing to be vaccinated once clearly and scientifically the benefits of that vaccination has been proven.

Lori Ranson:

So did you sort of engage employees early on in terms of the process and talk to them about the importance of vaccines before you kind of made the formal decision that a vaccine was maned?

Paolo Kakinoff:

Totally. We spent several hours explaining the benefits, telling them how important those things is to the whole society and engaging the employees in this understanding process. And I believe that the results speaks for itself. I mean, only 40 out of 14,000 people did not take the shots. So I think, I think that we were quite successful in explaining to everyone how, what was the, the background of our decision. And now I do expect that either those 40 employees will change their minds, or we will get the the legal allowance to not have them being part of our team anymore.

Lori Ranson:

Just to turn back to international briefly, because you mentioned Buenos Aires and Argentina has recently opened up and some other countries are opening up. I know that there's been some frustration because there's been a patchwork of restrictions within South America amongst the countries, and that makes it hard to, to relaunch international flights. Do you see that changing? How do you see that evolving as more international services come back online?

Paolo Kakinoff:

I believe that's going to change pretty soon. The countries and the authorities, they are talking to each other in order to, to raise a common understanding regarding the protocols and procedures. And that will facilitate, that will make much easier the interest of America, South America travels than it is today. So I believe that more and more we'll see those difficult going away and the regular, the typical way of, of flying within South America will be established.

Lori Ranson:

Oh, that's, that's good to hear, I think forever everyone. So correct me, but I think you have more than 13 max aircraft in the fleet at the moment. Is that right?

Paolo Kakinoff:

Yes. Yeah. Yeah. Actually we are heading to more than 20 until the end of this year.

Lori Ranson:

And can you just tell us how it's performing? Is it, is it meeting expectations and how do you see the fleet evolving over the next couple of years?

Paolo Kakinoff:

The Boeing 737 Max is a fantastic plane. It's not only 15%, more, few efficient than in comparison to the prior generation, but it also much quieter with raises the customer's comfort. And also it reduces carbon emissions. So we are more than satisfied with that plane, since the Boeing 737 Max return to the regular operations, we have transported more than 2 million passengers in Brazil in that aircraft and the NPS, the net promoting score levels are significantly higher than any other aircraft available in the market. So due to this amazing results, we are now in negotiations with, with Boeing to speed our fleet transition plan up as much as we can in order to achieve the following goals. And this year having around 25, maybe more 737 Max available in our fleet and double this number in 18 months. So we are now targeting to achieve by 2025, at least 50% of our fleet being operated with the Boeing 737 Max.

Lori Ranson:

And that helps contribute to your sustainability goals, obviously. And can you just walk us through how Gol is approaching sustainability because there's a lot of talk about sustainable aviation fuels, but it seems like in Latin America, just like elsewhere in the world, that's been a little bit slow to take off in terms of just kind of getting up to scale. So can you give us your view on that?

Paolo Kakinoff:

Yeah In indeed the 737 Max will help us to achieve our 2050 carbon neutral target already committed by the company. And we are probably leading that strateg in the region. We were the first airline to commit with such ambitious goal. And we are also not only the first, but they only airline allowing our customers to compensate their carbon emission during his or her flight in partnership with MOS platform. And we have also invested in local sustainable aviation fuel development already for more than one decade. So I think that the company is gathering all the conditions, not only to reach those goals, but also to continually lead the airline segment in the region towards the benefits that we are all expecting to achieve, and then catch up somehow in that mismatch between our regional pace and more major markets. Those are ahead of us in achieving better results regarding carbon emissions.

Lori Ranson:

And Gol recently announced up partnership with Avalon, for, electric taxi services and tell us what you think the potential is for that type of aircraft within Brazil, and sort of how you're going to approach it, your strategy in that regard, because it's definitely a big market that everyone's talking about, and it's going to be interesting to see how it evolves.

Paolo Kakinoff:

I think that our mega cities, they are, and we have some in Brazil, notably Sao Paulo and Rio Janeiro, they are, I mean, the best markets to host this kind of technological solution, talking about our choice, which is the vertical project, the [inaudible 00:19:39] , which can carry up to four passengers and one pilot with a range of a hundred miles and a maximum speed of 200 miles per hour, that would replace some of the current helicopter operations who have clear advantages. I mean, this is a hundred times less noise solution than an [inaudible 00:20:06] helicopter. And third times less on takeoff and landing. This is the first step to have that technology been deployed taking by Gol in the region, which is the partnership not only to develop the technology itself, but also to support the whole certification process. We will deploy all of our technology being a 20 year, three, 20 year old airline in the region and working alongside with ANAC the National Security Aviation Agency, their department of airspace airspace control in Brazil and other national international iron article authorities. I think that we will be able to complete the certification process by in Brazil by 2024. And then introduce this new technology technology in the market by me 2025.

Lori Ranson:

And this would, this would be a goal branded operation then with these aircraft?

Paolo Kakinoff:

Likely yes, we did not. I mean, decide 100% on that, which will be exactly the brand, but it'll be either go or something like go operated power by go. We are, we are discussing something because our brand is, is really powerful. We for the fifth consecutive year elect that the top of mind brand in Brazil, that's an asset which needs to be considered whenever you are considered, you are envisioning a, a new market introduction as this one we are just discussing right now.

Lori Ranson:

I know we're probably bumping up against time, but as you look back over the last year and a half, tell us some of the lessons that you've learned in the business that are going to be permanent for Gol going forward.

Paolo Kakinoff:

How powerful of our team of people. This is how our employees are, are called since the company was founded 20 years ago, how powerful and resilient we are. And, and also we can be considering the challenge we're facing since may last year. So we have said that we, I mean, when this pandemic started in March 2020 we said to ourselves that we were about to, to cross a dessert, which extension and temperature could not be predicted. So almost 19 months after that day, we can look backwards and see that we, we successfully concluded that mission, the company is stronger than never considering that we had enhanced it, our on cap abilities, and we had not stopped it investing in all those strategic projects, pretty important to the company's future. So just to give an idea, we had just transitioned the passenger services systems from Navor to Sabre, which is a much more powerful solution. And we did that, I mean, 45 days ago. So the combination of that experience with the discipline in to deploy the strategic projects made us a hundred percent prepared to face this post pandemic situation. Operating at an even stronger and better prepared company than we had before. So I think that the most important lesson learned is how resilient we can be even facing a such dramatic situation as the pandemic ease to every everyone.

Lori Ranson:

It seems sort of one trend that's emerged is even as companies, airlines worldwide were building up their balance sheets and, and making sure that they had enough cash to sustain operations. There was a balance in turn of making investments in technology. And do you think the industry is realising that you can't take, you can't stop some of these investments, even during a crisis because these investments can help you manage better through the crisis. You just mentioned sort of the passenger service system and things of that nature.

Paolo Kakinoff:

I think that you might low down investments whenever you are facing balance sheet constraints, but in our industry, you can never stop it. Never, ever. So it's, I mean, this is what we define your future. And in our case, we are glad that we could sustain our strategy mainly with regards to the technological platform, even during such tough times.

Lori Ranson:

And I guess just finally, do you see any permanent [inaudible 00:26:07] in passenger behaviour or passenger?

Paolo Kakinoff:

Lori. Sorry, but your question was interrupted by a bad connection. I couldn't hear it.

Lori Ranson:

Oh, okay. Sure. I'll repeat it. Just finally, can you, do you think that there some permanent changes and maybe passenger expectations or passenger behaviour?

Paolo Kakinoff:

It is pretty early to say that. We do not see the passengers changing their behaviour in a way with I'm sorry, let me, let me rephrase it. Could you please ask again?

Lori Ranson:

Sure. Do you see sort of any permanent changes in sort of passenger behaviour as a result of the pandemic?

Paolo Kakinoff:

I guess it's too early to determine or my considering that the passenger behaviours have, have been affected by, by the pandemic. So now you need to wear masks. The, the onboard service is not available anymore. So we need to really have the pandemic being declared over and then analyse the passenger's behaviour to understand whether there is some change or not. But honestly, I don't believe this is going to be something really meaningful to be noticed when the pandemic who would not be there anymore.

Lori Ranson:

Great. Well, Kaki thank you so much. We really appreciate you joining us today, and we hope to talk to you soon in the future.

Paolo Kakinoff:

Thank you very much, Lori. I'm always available. Thank you.

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