Gol

Continued erosion in Brazil’s domestic demand triggers stringent capacity discipline for Gol and TAM

Brazil’s two largest carriers Gol and TAM have further refined their already-reduced capacity guidance for 2012 as traffic growth in the country’s domestic sector continues at a much slower pace than during the last couple of years. The continued discipline is part of a broader effort that began in mid-2011 by the carriers to improve their yield performance. But the rebuilding process is progressing more slowly than each carrier would have liked as TAM has concluded customers in the Brazilian domestic market place are becoming more price adverse as the country’s economy is slowing from historically high growth levels during the last several years. Brazilian carriers are also facing added pressure from government-imposed increases in navigation and landing fees.

During 1Q2012 demand (RPKs) in the Brazilian domestic market grew just 7.3% on capacity growth of 11.3%. The growth in 1Q2012 is much slower than the 15.3% growth recorded year-over-year in 1Q2011 and the 33% growth during 1Q2010.

Rapidly expanding Kenya Airways charts growth with plan to serve every inhabited continent by 2017

Kenya Airways plans to launch its first services to North America, South America and Australia by 2017, making it one of the few carriers to serve every inhabited continent. While these three continents will give Africa's currently fifth-largest airline by seats a global presence, its future is pegged on Asia, with the carrier over the next 10 years planning to launch seven new routes into China, six in the Indian Subcontinent and three across North and Southeast Asia as well as having a growing presence in Europe and the Middle East. It is poised to become Africa's largest carrier.

Growth will be fuelled by Africa's status as a burgeoning market, as well as reliance on partners: Kenya Airways will open routes to SkyTeam member hubs in Xiamen (Xiamen Airlines), Hanoi (Vietnam Airlines), Seoul (Korean Air), Moscow (Aeroflot) and Prague (Czech Airlines). The intercontinental focus follows Kenya's strong emphasis on regional Africa, with the carrier aiming to serve every African nation by the end of 2013. 

Brazil’s Gol and TAM continue domestic capacity restraint in attempt to improve yields

Brazilian low-cost carrier Gol has revised its domestic capacity plan for 2012 to a zero growth scenario and is hinting its domestic ASKs this year could even fall after growing by 7.4% in 2011. The country’s largest carrier, TAM, also plans less than 2% domestic capacity growth for 2012 after expanding its domestic ASKs by 9.5% in 2011. Both carriers are exhibiting capacity discipline in the hopes of continuing a yield recovery that began during 2H2011. But at the same time other domestic Brazilian operators, including Azul, Avianca Brazil and TRIP, continue to rapidly expand.

Gol revised its capacity forecast as it posted last week a BRL710 million (USD389 million) loss for 2011 and a negative 2.5% pre-tax margin. The losses were largely due to a 23% hike in the carrier’s fuel costs, currency fluctuations and non-recurring expenses related to aircraft returns.

Gol and new Gol domestic subsidiary Webjet have begun the process of cutting 80 to 100 daily domestic flights. This represents about 8% of their current combined offering of 1100 daily flights. Gol agreed to purchase Webjet in Jul-2011 and while the acquisition has not yet been completed, 87 days of Webjet's operation were included in Gol's 2011 results.

Gol’s return to Miami signals strategy shift following investment from Delta

Plans by Brazil’s Gol to re-enter the US market, with Boeing 737NG service expected to be launched later this year to Miami, marks a significant shift in the carrier’s strategy of focussing on growing its domestic footprint in Brazil. The mindset change was likely influenced by Delta Air Lines, which late last year acquired a 3% stake in the low-cost carrier and gained a seat on Gol’s board.

During the past few years, Gol has taken a conservative approach to its international expansion, dropping several international destinations in favour of additional domestic capacity aimed at meeting fast growing demand from the country’s expanding middle class. Gol currently only serves five other countries in South America and operates a few low-frequency, primarily seasonal routes to the Caribbean.

Delta’s investment in Gol has SkyTeam and broader US-LatAm strategic implications

SkyTeam’s goal of recruiting Gol as a new member took one gigantic step forward this week with Delta Air Line’s acquisition of a minority stake in the Brazilian carrier. The deal also further separates Delta from its US peers as the airline continues to aggressively pursue a strategy of investing in carriers from Latin America and potentially other overseas markets. Other US major carriers have not yet duplicated this strategy but should be enticed to follow Delta’s lead given the opportunities which exist outside the mature US market.

Delta’s eagerness to invest outside North America first surfaced in late 2009, when it made an ultimately unsuccessful bid to acquire a stake in Japan Airlines while the oneworld carrier was restructuring under bankruptcy protection. Nearly two years later, in Aug-2011, Delta made a lower profile but equally significant move in agreeing to acquire a minority stake in fellow SkyTeam member Aeromexico. The USD65 million deal with Aeromexico will give Delta about a 4% share in its Mexican partner as well as a seat on Aeromexico’s board.

TAM plans US expansion in 2012 with B777-300ERs while Brazil domestic growth slows

Brazil’s TAM is planning further capacity expansion on US routes in 2012 as growth in the Brazilian domestic market shows signs of cooling down. The US expansion will be driven by the doubling of TAM’s B777-300ER fleet next year from four to eight aircraft. The B777-300ER, which is by far the largest aircraft type in TAM’s fleet, is now only used on European routes but will start to be deployed in the US during 2012.