Gol Advances as Profitability Improves on Capacity Cut

Gol Linhas Aereas Inteligentes SA rallied the most in two weeks as the Brazilian airline’s first-quarter earnings report showed an improvement in profitability after it reduced flights on less-traveled routes.

The shares climbed 3.3 percent to 12.25 reais at the close of trading in Sao Paulo, the biggest one-day gain since April 25. The Ibovespa (IBOV) Brazilian equity benchmark rose 0.4 percent.

While the airline posted an unexpected adjusted net loss in the first quarter, its earnings before interest, taxes, depreciation and amortization of 212.1 million reais ($105.6 million) exceeded the average estimate of 186 million reais among four analysts surveyed by Bloomberg. A gauge of profitability that measures net passenger income per available seat per kilometer increased 12.4 percent in March from a year earlier, Gol said in a regulatory filing.

The quarterly results show that the company is executing “a successful turnaround,” Marimar Torreblanca, an analyst at UBS AG (UBSN) who rates the airline a buy, wrote in a note to clients today. “Gol’s focus on profitability and disciplined capacity management is critical.”

The company reduced the number of flights in the domestic market by 16 percent in the first quarter of this year from 2012, according to the filing. The airline has been reducing domestic capacity as it tries to improve margins after growth in Brazil trailed forecasts last year. Gol had projected gross domestic product would expand 3 percent to 4 percent, more than three times the 0.9 percent it increased.

The Sao Paulo-based airline’s focus on cutting flights in Brazil “should persist and bring confidence to a better pricing environment,” Banco BTG Pactual SA (BPAC3) analysts including Renato Mimica wrote in a note to clients today in which they reiterated a buy recommendation on the shares.

Gol’s shares have declined 5 percent this year while the Ibovespa fell 10 percent.

To contact the reporter on this story: Denyse Godoy in Sao Paulo at dgodoy2@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net

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