GOL posts another loss as Varig weighs

[Pieter C. 5]

Gol Posts Another Loss As Varig Weighs

 

May 1, 2008

Brazilian airline Gol Linhas Aereas reported its second straight quarterly loss on Wednesday as problems with its Varig unit and high fuel prices offset growing passenger traffic.

 

The carrier posted a net loss of BRR3.5 million reais (USD$2.0 million) in the first quarter, compared with a profit of BRR116.6 million in the year-earlier period and a loss of BRR24.2 million in the fourth quarter.

 

Gol, the second-ranked airline in Brazil after TAM Linhas Aereas, also reduced its year-end fleet size forecast to 108 from 112. It plans to return older aircraft and gradually replace them with more next-generation jets from the Boeing 737 family, which are more fuel efficient.

 

Gol's bottom line has suffered since it bought Brazil's former flagship airline Varig last year. Varig was on the verge of collapse after years of mismanagement. Gol is currently trying to overhaul Varig and bring its cost structure down.

 

Excluding Varig, which canceled three international routes in March and has plans to scrap two more because of rising fuel costs, Gol said it would have made a net profit of BRR200.1 million (USD$115 million) in the first quarter.

 

Gol plans to phase out Varig's remaining routes to Europe and Mexico in the coming months and focus instead on Brazil and South America, where it thinks Varig is better positioned to profit from a fast-growing aviation market.

 

"Our strategy is to reinforce our operations in South America. That means taking actions to standardize our fleet and take advantage of that with flights where we have a competitive advantage in terms of costs," Gol Chief Executive Constantino de Oliveira Junior said.

 

Gol executives said they hope to obtain antitrust approval for the Varig acquisition in the second quarter, which will allow them to finally merge the two operations under one roof and exploit much-needed cost synergies.

 

"We now believe we have Varig on track to be a positive contributor... by the end of July," said Richard Lark, Gol's chief financial officer.

 

Net revenue jumped 54.3 percent in the first quarter from a year before and 11.4 percent from the fourth quarter to BRR1.6 billion, lifted by a surge in passenger traffic. Gol and Varig transported 6.4 million travelers in the quarter, a 21.8 percent increase over the year-earlier period.

 

Total operating costs jumped 77.7 percent in the quarter to EUR1.63 billion, in large part because of skyrocketing jet fuel prices and a sharp increase in personnel expenses.

 

Unlike carriers in the United States, most of Latin America's major airlines have managed to cushion the impact of rising fuel costs with surging passenger traffic as robust economic growth allows more people to fly.

 

Domestic air travel expanded 11.2 percent in the first quarter in Brazil, more than double the pace of the country's economic growth, and is expected keep rising in double digits.

 

Still, fuel prices are also set to climb further, putting pressure on Gol and other carriers to raise fares. Brazil's state-run oil company Petrobras said on Wednesday it would raise the price of aviation fuel by 6.6 percent as of May 1.

 

(Reuters)

 

[TK 0]

ah man...looks like in trouble.