Gol Sees Room to Raise Fares as Record Bond Sale Nears

Gol Linhas Aereas Inteligentes SA, poised for what may be a record bond sale, sees an opportunity to keep raising airfares even as Brazil struggles with an economic slowdown.

Brazil’s biggest airline probably will keep seating capacity stable for the next two years so Gol catches up with the industry average in flying fuller planes, Chief Financial Officer Edmar Lopes said. Ticket prices rose 10 percent in the first half from a year earlier, according to regulatory filing.

Strengthening pricing power is central to Gol’s strategy to end annual losses that began in 2011. Amid a recession and slowing growth in Brazilian air travel, Sao Paulo-based Gol is also taking advantage of low borrowing rates to buy back debt with proceeds from a bond sale that Standard & Poor’s estimates may be as much as $500 million.

“If you go back to passenger revenue, we think that we have room to grow,” Lopes said yesterday in an interview at Bloomberg’s headquarters office in New York. “As long as we keep capacity under control, as long as we are improving or increasing our network outside Brazil, developing or maturing more flights, we think that we will be in good shape.”

Lopes declined to comment on the bond sale amid investor meetings in the U.S. and Europe.

Margins Rising

Operating margin this year will be in a range of 3 percent to 6 percent as the airline puts more passengers on each flight and reaps ancillary revenue from its extra-legroom seats and in-flight food, Gol has said. Analysts estimate Gol will have its first quarterly profit in three years in the fourth quarter, according to data compiled by Bloomberg.

Load factor, a measure of seats on each flight filled by paying passengers, is now about 76 percent, and Gol is seeking to match an industry average that exceeds 80 percent, Lopes said. While Gol trails rivals’ average fares, its prices have been rising faster since it began paring the number of available seats in 2012, according to an investor presentation.

The pullback in seats helped shrink first-half losses to about 241 million reais ($107 million) after a full-year loss in 2012 of 1.5 billion reais. The shares rose 44 percent this year through Sept. 5.

S&P said Sept. 2 that Gol is planning a sale of as much as $500 million of bonds to repurchase notes due in 2017, 2020 and 2023. The offering would be Gol’s biggest ever, and the first since the company issued $200 million in February 2013, data compiled by Bloomberg show.

Investor Meetings

The airline hired BB Securities, Bradesco BBI, Citigroup Inc., Morgan Stanley and Banco Santander to arrange investor meetings from Sept. 3 through tomorrow, said a person familiar with the matter who wasn’t authorized to speak publicly and asked not to be identified.

The sale comes after S&P and Moody’s Investors Service raised their outlooks on the airline’s creditworthiness last month. S&P boosted its outlook on Gol’s B rating to stable from negative on Aug. 26, while Moody’s changed its outlook on Gol’s B3 grade to positive from stable on Aug. 7.

Traffic should continue increasing on so-called code-sharing agreements with Delta Air Lines Inc. and Air France-KLM, which let passengers book tickets on each other’s flights. Delta and Air France own stakes in Gol.

“We are adding traffic to them, and they are adding traffic to us,” Lopes said. Gol could add a code-share with an Asian airline in the future when traffic increases, he said.

The company is studying adding new U.S. destinations. When pressed for possibilities, Lopes cited Las Vegas and Boston as popular destinations among Brazilians. Boston also doesn’t have a direct flight from Brazil.

Gol is also evaluating the Brazilian government’s regional aviation program, which may provide about 1 billion reais in subsidies in its first year to help encourage airlines to expand services to smaller cities.

“We will have to evaluate,” Lopes said. “It’s a very tough issue because of the size of the country.”

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