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Gol Eyes U.S. Expansion Under American Airlines Partnership

Edward Russell

April 28th, 2022

Gol is feeling the benefit of its expanded strategic alliance with American Airlines just weeks after the pact was finalized.

Paulo Kakinoff, CEO of Gol, said on April 28 that the partnership with American is already two times larger than the Brazilian carrier’s former tie-up with Delta Air Lines, which ended in March 2020. That is significant given that, while American and Gol unveiled plans for a codeshare in early 2020, the alliance only began to take off once restrictions on international travel between Brazil and the U.S. eased last year. The airlines unveiled a strategic partnership in September that was finalized when American closed a $200 million investment in Gol on April 13.

But things are not stopping there. Gol is considering more flights to Miami, a large American hub, from Brazil with its rapidly growing fleet of Boeing 737 Maxes. The planning, which executives did not provide any specifics on, comes as Gol prepares to relaunch U.S. flights in May: Orlando resumes on May 13, and Miami on May 17, according to Cirium schedules. Both Florida cities will be served nonstop from Brasilia after a two-year hiatus.

“There is a significant narrowbody operation that we can develop in partnership with American out of Miami, if American focuses [its] widebodies on the longer distances,” Gol Chief Financial Officer Richard Lark said during Gol’s first-quarter earnings call on April 28.

American serves only Rio de Janeiro Galeão and São Paulo Guarulhos from Miami, Cirium shows. It ended service to Brasilia in 2020, and Manaus in 2021.

In addition to reconnecting Brasilia to American’s Miami hub, Gol’s 737-8s could also fly the Miami-Manaus route. Other possible markets mentioned by Wall Street analysts include Belem, Recife, and Salvador. American connected Miami to Recife and Salvador until 2016, according to Cirium.

“We are taking careful notes,” Kakinoff said in response to the analyst suggestions. He added that more U.S. routes were coming without providing additional details.

One limiter, however, is the lack of antitrust immunity for American and Gol. While the codeshare allows them to sell each others flights, they cannot coordinate or jointly price itineraries that could boost traffic. Kakinoff said there are no immediate plans to seek immunity from regulators.

Gol’s new air freight agreement with Mercado Livre, an e-commerce and online auction company, is set to take off in the second half. The airline anticipates 100 million reais ($19.9 million) in incremental revenue from the pact that covers six Boeing 737-800 freighters this year. The financial benefit is expected to ramp to 1 billion reais within five years.

The expanded logistics business by Gol follows a similar move by competitor Azul. Executives at the Campinas-based airline have said air freight is the “story of Azul over the next several years,” and outlined ambitious growth targets. By their estimates, air freight is underrepresented in the Brazilian logistics business and that Azul can help expand its share and benefit in the process.

Aside from its commercial deals, the first quarter — historically the strongest in Brazil — was good for Gol. The airline posted a 2.6 billion reais net profit in the period, which was a reverse from a loss in the fourth quarter but not its first pandemic profit after a 658 million reais profit in the second quarter of 2021. Revenues increased 105 percent year-over-year to 3.2 billion reais, and were up less than 1 percent compared to 2019. And on the financial metrics important to airlines: Passenger unit revenues jumped 28 percent year-over-three-years on a 6 percent increase in unit costs excluding fuel.

Gol’s results benefitted from a 60 percent jump in bookings in March compared to prior months, Kakinoff said. This include a dramatic rebound in corporate travel.

And in terms of fuel, Lark said Gol has been able to fully recapture the increase in prices through higher fares and yield management. The airline saw its average fuel price rise just 7 percent in the first quarter from the one prior, which benefitted from changes in the value of the reais versus the U.S. dollar.

The airline’s outlook for 2022 is unchanged from the guidance it provided in March. Gol forecasts a 10 percent earnings before interest and taxes (EBIT) margin, and plans to have 130-140 aircraft in its fleet by year-end.

Raymond James analyst Savanthi Syth called the reiterated guidance “slightly encouraging” given the volatility in oil markets and other geopolitical pressures.

Edward Russell

April 28th, 2022

Photo credit: Gol sees opportunity to expand its U.S. map under its new partnership with American Airlines. Flickr / JT Occhialini

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