Brazilian Carrier Flying High: GOL
Is there any hope left for the airline industry?Bedeviled by bloated pension/health care costs, cutthroat competition, and high energy prices, airlines have been dropping like flies, one after the other.
Just as saddening is how former hi-fliers like Delta (DAL) have crashed and left millions of hard working Americans wondering just where their retirement benefits went.
Given all the ills that plague airliners today, it's amazing to hear about one small South American airliner that's fought against all odds, seen its share price take off, and emptied people off Brazil's crowded buses.
Enter Gol Linhas Aéreas Inteligentes (GOL).
The low-cost, low-fare airliner has been profitable since 2002 and now commands about 28% of Brazil's airline market.
What's Gol's secret formula?
It's their structure -- a mix of Southwest's (LUV) efficiency and Jet Blue's (JBLU) value proposition.
Gol keeps things simpler than Thoreau: one Boeing fleet, one class of service.
In addition, Gol manages fuel and labor costs better than its US counterparts.
For instance, Gol's average pilot salary is $35K; in comparison, Southwest drops roughly $200K on each of its pilots.
That explains Gol's juicier operating margins.
The skies of Gol's future certainly look bright -- Gol has plans to expand heavily, but not beyond it core, underserved South American market.
That's fine with us - there are over 500 million people in South America to which Gol can offers its peanuts.
Gol has first-mover advantage, which will be its leg up on the competition as it strives to maximize revenue-per-seat and amass market share.
If fuel costs stabilize even further, expect to see shares of Gol really soar in 2006.
Should more turbulence befall the airline industry in 2006, we expect Gol to weather it -- we're initiating coverage with a hold rating.
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