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Gol Shares Rise as Costs Decline 3.9% in First Quarter

Gol Linhas Aereas Inteligentes SA’s shares rose as Brazil’s second-biggest airline said costs per seat in the first quarter declined and analysts said the carrier could become profitable in the second half.

The shares climbed 5.2 percent to 10.54 reais at the close in Sao Paulo, their highest value since April 17. The stock had fallen 19 percent before today. Costs per seat per kilometer, or Cask, excluding fuel, fell 3.9 percent to 8.63 centavos in the quarter, the company said in its results statement earlier today. The shares rose even as Gol posted a surprise loss.

“Gol successfully managed the Cask ex-fuel” in the first quarter, Bank of America Merrill Lynch analysts wrote in a note to clients today. “If we don’t see any unpleasant surprise from exogenous items such as foreign exchange, oil or competition, Gol could finally reach” profitability in the second half, wrote analysts Roberto Otero, Sara Delfim and Murilo Freiberger, who have a neutral rating on the stock, equivalent to hold.

Gol is retrenching as it tries to control labor costs and manage rising jet-fuel prices. The company dismissed 131 crew members and cut 80 of its 900 daily flights early this month and is on schedule to spin off its frequent-flier business, known as Smiles, executives said on a conference call today.

“The effort is huge to keep the Cask as low as possible,” Chief Executive Officer Constantino de Oliveira Jr. said on the conference call with reporters. “The more challenging the environment, the better the advantage an airline gets for keeping Cask low.”

Net Loss

Including fuel, Cask rose 6.6 percent, as fuel costs increased 42 percent to 951.6 million reais ($495 million), representing about 44 percent of the carrier’s total costs.

Gol, based in Sao Paulo, posted a 41.4 million reais consolidated net loss in the quarter, compared with a net income of 69.4 million reais a year earlier. That missed the average analysts’ estimate of 9.03 million reais, according to data compiled by Bloomberg.

Earnings before interest, taxes, depreciation, amortization and rent costs fell 24 percent to 267.9 million reais. Sales were 2.17 billion reais, compared with 1.9 billion reais a year earlier.

First-quarter profit was also hurt by a decline in the value of the real. The real has lost 2.2 percent against the dollar this year, the second-worst performance among 16 major currencies tracked by Bloomberg.

One-Off Expenses

Gol has no further plans for cuts in payroll and flights, should the present scenario of fuel and currency-related costs remain, Oliveira said today. Measures announced on April 2 should affect Gol’s performance in April and May the most, reducing costs and increasing one-off expenses related to severance, he said.

The company’s payroll cost rose 13 percent to 407.3 million reais in the quarter, according to the filing.

Gol is on track to spin off Smiles, Chief Financial Officer said on the call.

“Our goal is, really, to have all the information we need to assess the move and reach a decision, whatever it is,” he said.

An initial public offering of Smiles, after a possible spin off, shouldn’t be assumed, said Pereira. Gol might keep Smiles as a privately-owned subsidiary, supporting the airline business, he said.

Gol shares have fallen 15 percent this year, trailing Brazil’s benchmark Bovespa index, which has risen 7.2 percent. Tam SA, Gol’s biggest competitor, has gained 28 percent so far this year.

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