Nov. 10 (Bloomberg) -- Gol Linhas Aereas Inteligentes SA rose for a sixth day, the longest winning streak since May, after Brazil’s second-biggest airline said domestic demand may grow more than three times faster than previously forecast.

Gol added 2 percent to 20.90 reais in Sao Paulo trading, the highest closing price since June 2008. The shares have more than doubled this year, compared with a 77 percent gain in the benchmark Bovespa stock index.

The Sao Paulo-based airline forecasts demand in the domestic market will rise as much as 14 percent this year, up from a previous estimate of an increase between 2 and 4 percent. The number of passengers carried will be 3 percent higher than initially estimated.

“Demand has been stronger than we imagined,” Chief Financial Officer Leonardo Pereira said in a telephone interview after the release. “Things that were unthinkable a few months ago are happening now.”

Demand for Gol flights increased 16 percent from the second quarter as Latin America’s largest economy recovered from its first recession since 2003. Economists expect Brazil’s gross domestic product to grow 0.2 percent this year, according to a weekly survey published by the central bank yesterday. In June, estimates were for a GDP contraction of 0.7 percent.

“There’s an increase in demand generated by a reduction in ticket prices, but a larger part of the demand growth comes from the economic recovery,” Pereira said from Sao Paulo.

Tam SA, Brazil’s biggest airline, added 2 percent to 28.29 reais in Sao Paulo trading today.

Profit

A stronger Brazilian real and a decline in jet-fuel prices helped Gol post a profit of 77.9 million reais ($45.5 million) in the third quarter, compared with a net loss of 510.7 million reais a year earlier, according to a regulatory filing yesterday. That beat the median estimate of 58.2 million reais among three analysts surveyed by Bloomberg News.

Brazil’s real gained 8.5 percent against the U.S. dollar in the 12 months through the end of September, while fuel prices in New York dropped 41 percent. That helped shrink costs denominated in foreign currency, including a 35 percent drop in fuel expenses.

Gol was also able to trim dollar-linked debt payments after it issued 400 million reais in local bonds and used the proceeds to swap for costlier foreign-currency debt.

“The real increase was very good for Gol,” Kelly Trentin, head of research at SLW Corretora in Sao Paulo, said before the earnings release. She advises buying Gol shares. “Still, a price war in Brazil in the third quarter pushed yields down. And that isn’t good.”

Revenue fell 16 percent to 1.5 billion reais. The results were reported according to International Financial Reporting Standards in a filing to the Brazil’s securities regulator after market close.

‘Better Yields’

Gol and Tam reduced fares last quarter to stoke demand and fend off discounters such as David Neeleman’s Azul Linhas Aereas Brasileiras. Lower prices helped Gol fill 66 percent of available seats in September, compared with 57 percent a year earlier.

Price cuts also led to a 30 percent plunge in yields, or the average fare for each kilometer flown. Average ticket prices declined 36 percent from a year earlier.

“Yields will gradually recover through the end of the year,” Chief Executive Officer Constantino de Oliveira Jr. told journalists in a conference call after the earnings release. “We are entering a more favorable season.”

Gol was upgraded to “neutral” from “underweight” at JPMorgan Chase & Co. yesterday on prospects for better fares.

“Domestic pricing hostilities in Brazil appear to have eased over the weekend, with significant upward revisions to walk-up fares,” analyst Jamie Baker wrote in a note to clients.

To contact the reporter on this story: Heloiza Canassa in Sao Paulo at hcanassa@bloomberg.net

Last Updated: November 10, 2009 15:40 EST