Gol Delays New Jets as Brazil's Plunging Real Crimps Air Travel

Updated on
  • Record loss spurs hiring freeze, cut in 2015 margin forecast
  • CEO sees volatility easing in 2016 because `worst is over'

Gol Linhas Aereas Inteligentes SA postponed the addition of some new jets, froze hiring and trimmed its forecast for operating profit margin after the real’s plunge sent Brazil’s biggest airline to a record loss.

Deliveries of Boeing Co. 737s will drop to just four in 2016-2017, about one-fourth of its initial plan, Gol said Thursday. The airline also will more than double the number of planes it subleases to other carriers during off-peak months and won’t replace employees who leave, Chief Executive Officer Paulo Sergio Kakinoff said.

Gol’s third-quarter loss of 2.13 billion reais ($567 million) and its rush to cut costs highlighted the pain from the recession gripping Latin America’s biggest economy. Unemployment in Brazil hit a 5 1/2-year high in October, and the real’s 21 percent decline against the dollar during the June-September quarter was the most among 22 major currencies, according to data compiled by Bloomberg.

While Gol has been hurt, “the worst is over,” Kakinoff said on a conference call. “It is our perception that the volatility of 2015 won’t happen again in 2016.”

Abrupt Changes

Brazil’s economy deteriorated so quickly from the second to third quarter that Gol couldn’t react fast enough, Kakinoff said. “The adaption of a company often happens at a slower velocity than the abrupt changes” that Brazil has suffered, he said.

Gol fell 2 percent to 3.44 reais at 1:05 p.m. in Sao Paulo. The stock plunged 77 percent this year through Wednesday, outstripping the 5.9 percent drop in the benchmark Ibovespa index.

Gol is vulnerable to foreign-exchange swings because more than half its costs are denominated in dollars and only a small portion of that exposure has been hedged, according to a Nov. 4 report by Moody’s Investors Service. Sao Paulo-based Gol said it generated 14 percent of its revenue in the U.S. currency in the third quarter.

Empty Seats

Brazil’s economic weakness also means airlines are struggling to fill seats -- domestic air travel fell in August and September -- and prop up ticket prices. Gol’s net passenger revenue for each seat flown a kilometer, a measure of profitability, dropped 1.3 percent in the quarter. Net yield, or the average fare per kilometer flown, fell 2.6 percent.

Operating margins for 2015 will be minus 2 percent to zero, compared with a previous forecast of as much as 5 percent, Gol said. The third-quarter loss was its 15th in a row and was wider than the 1.74 billion reais deficit projected by GBM.

The belt-tightening isn’t over. Fourth-quarter domestic seating capacity will drop by 5 percent to 7 percent. Moody’s has projected that Gol may have to cut capacity by at least 8 percent next year to mitigate the impact from currency weakness and the country’s economic slowdown.

There probably will be a reduction in flights for the whole industry, Kakinoff said.

Gol said flights to Miami and Orlando, Florida, will be operated only on a seasonal basis starting next month, and it’s studying whether it should continue flying to Caracas. The airline said it plans to add new Latin American destinations such as Havana and is considering new direct flights to Buenos Aires.

Aircraft subleases will rise to 12 in 2016, up from seven this year, Gol said. The all-Boeing 737 fleet now numbers 139 planes, according to Gol’s website. The airline had 16,702 employees as of the end of last quarter, according to data compiled by Bloomberg.