Panama Jack
17th Feb 2005, 04:48
Interesting articles floating around during the last few days about Brazilian low-cost carrier (LCC) Gol.
Investor's Business Daily
Low-Fare Carrier Hits New Heights In Brazil
Tuesday February 15, 7:00 pm ET
Marilyn Alva
It offers cheaper flights than rivals. It serves peanuts and soft drinks and boasts 25-minute turnarounds. It flies an all-Boeing fleet of new 737s.
If this sounds like a familiar low-cost air carrier in the U.S., it's meant to. Four-year-old Brazilian carrier Gol Intelligent Airlines patterned its business after Southwest Airlines (NYSE:LUV - News).
It's been a successful strategy. Gol has been profitable since 2002 and now commands about 25% of Brazil's airline market. It's the third largest domestic carrier after Tam and the long-struggling Varig, which also flies overseas.
Since it went public in June at $17 a share, Gol's stock has risen more than 85%.
"They are doing everything right," said Robert Booth, chairman of AvGroup, a Miami, Fla.-based aviation consulting firm that specializes in Latin America.
'Everyone Can Fly'
Gol -- which in Portuguese means "goal" -- flies to 37 cities in Brazil, a country that is nearly as big as the continental U.S. Most of its 170 million citizens couldn't afford a plane ticket until Gol came along with cheap advanced fares.
Many of Gol's late night red-eye flights cost about the same as a bus ticket. The company's advertising slogan: "Gol. Here everyone can fly."
Cut-rate fares between 1 a.m. and 5 a.m. are part of the airline's strategy to lure more passengers. It's working. The flights operate at 92% of capacity or more, and about 15% of passengers have never flown on a plane before.
"They're getting people who've never flown before off the buses and automobile," Booth said.
Gol's top management knows all about Brazil's bus business. Founder and chairman Constantino de Oliveira owns one of Brazil's biggest bus companies, Aurea Group.
He had long wanted to start a low fare and low cost airline in Brazil. In 2000 -- a year before Gol's launch -- he seized the moment by grabbing pilots and other furloughed employees from major carrier Vasp, which was downsizing.
The regulatory climate also had eased by then.
De Oliveira and his son -- Constantino Jr., Gol's chief executive -- visited operations at Southwest and JetBlue (NasdaqNM:JBLU - News) in the U.S. and easyJet in Europe. Southwest had the biggest impact, says Richard Lark, Gol's chief financial officer.
The "Gol Effect" -- like the "Southwest Effect" -- has caused air passenger growth to explode in markets it's entered.
"The first five air markets we started operations in 2001 have grown twice the national average," Lark said. "Our growth depends more on adding aircraft than GDP growth."
Gol's leased fleet of 29 Boeing 737s will get a boost next year. In early February, the company announced that it increased to 63 the number of 737-800s it plans to buy outright from Boeing. Gol previously planned to buy 43 planes.
The first deliveries are set to start next year.
Managing Costs
Long flying days, coupled with fast turnarounds, help leverage fixed costs over more revenue-producing miles. The airplanes themselves represent about 50% of Gol's costs, Lark says.
Unlike the U.S. air market, where labor costs account for as much as 40% of overall costs, airline labor costs in Brazil make up less than 10% of the total.
"In Brazil, if you can manage your aircraft well you have a good chance of keeping costs low," Lark said.
Almost 70% of Gol's revenue comes from business travelers. Since business travelers are not as price-sensitive as leisure customers, Gol can pass through 70% of its fuel-cost increases through fare hikes, Lark says.
Brazil's business travelers also generate higher profits for Gol since they're willing to pay for convenience and last-minute travel.
"Our prices are 20% to 25% less than competitors on average," Lark said. "But in many of the most competitive markets where there is high demand by business travelers, our value proposition is more or less the same."
Gol's earnings in last year's third quarter rose 52% from the prior year to 41 cents a share. Revenue gained 31% to $181 million.
Analysts polled by First Call estimate full-year 2004 earnings of $1.45 a share. They expect earnings this year will grow 26% to $1.82.
Gol plans to expand service to major cities across South America over the next three years.
It began service to Argentina in December and expects to start service to Bolivia by June. The firm has no plans to fly beyond South America.
"There are 500 million people living in all of Latin America," Booth said. "Less than 10% of the population uses air service, so the potential is enormous."
http://us.news2.yimg.com/us.yimg.com/p/fi/pr/43022.gif
Low-Fare Carrier hits new heights in Brazil (http://biz.yahoo.com/ibd/050215/newamer_1.html)
Are any forum members familiar with operations at Gol? In competing with Brazilian national airlines, do you think they are a sustainable operation? What are their working conditions? For a Latin American LCC, are employees paid similar to what other Brazilian airline employees are paid, or is renumeration in the form of bags of peanuts 2X a month?
Investor's Business Daily
Low-Fare Carrier Hits New Heights In Brazil
Tuesday February 15, 7:00 pm ET
Marilyn Alva
It offers cheaper flights than rivals. It serves peanuts and soft drinks and boasts 25-minute turnarounds. It flies an all-Boeing fleet of new 737s.
If this sounds like a familiar low-cost air carrier in the U.S., it's meant to. Four-year-old Brazilian carrier Gol Intelligent Airlines patterned its business after Southwest Airlines (NYSE:LUV - News).
It's been a successful strategy. Gol has been profitable since 2002 and now commands about 25% of Brazil's airline market. It's the third largest domestic carrier after Tam and the long-struggling Varig, which also flies overseas.
Since it went public in June at $17 a share, Gol's stock has risen more than 85%.
"They are doing everything right," said Robert Booth, chairman of AvGroup, a Miami, Fla.-based aviation consulting firm that specializes in Latin America.
'Everyone Can Fly'
Gol -- which in Portuguese means "goal" -- flies to 37 cities in Brazil, a country that is nearly as big as the continental U.S. Most of its 170 million citizens couldn't afford a plane ticket until Gol came along with cheap advanced fares.
Many of Gol's late night red-eye flights cost about the same as a bus ticket. The company's advertising slogan: "Gol. Here everyone can fly."
Cut-rate fares between 1 a.m. and 5 a.m. are part of the airline's strategy to lure more passengers. It's working. The flights operate at 92% of capacity or more, and about 15% of passengers have never flown on a plane before.
"They're getting people who've never flown before off the buses and automobile," Booth said.
Gol's top management knows all about Brazil's bus business. Founder and chairman Constantino de Oliveira owns one of Brazil's biggest bus companies, Aurea Group.
He had long wanted to start a low fare and low cost airline in Brazil. In 2000 -- a year before Gol's launch -- he seized the moment by grabbing pilots and other furloughed employees from major carrier Vasp, which was downsizing.
The regulatory climate also had eased by then.
De Oliveira and his son -- Constantino Jr., Gol's chief executive -- visited operations at Southwest and JetBlue (NasdaqNM:JBLU - News) in the U.S. and easyJet in Europe. Southwest had the biggest impact, says Richard Lark, Gol's chief financial officer.
The "Gol Effect" -- like the "Southwest Effect" -- has caused air passenger growth to explode in markets it's entered.
"The first five air markets we started operations in 2001 have grown twice the national average," Lark said. "Our growth depends more on adding aircraft than GDP growth."
Gol's leased fleet of 29 Boeing 737s will get a boost next year. In early February, the company announced that it increased to 63 the number of 737-800s it plans to buy outright from Boeing. Gol previously planned to buy 43 planes.
The first deliveries are set to start next year.
Managing Costs
Long flying days, coupled with fast turnarounds, help leverage fixed costs over more revenue-producing miles. The airplanes themselves represent about 50% of Gol's costs, Lark says.
Unlike the U.S. air market, where labor costs account for as much as 40% of overall costs, airline labor costs in Brazil make up less than 10% of the total.
"In Brazil, if you can manage your aircraft well you have a good chance of keeping costs low," Lark said.
Almost 70% of Gol's revenue comes from business travelers. Since business travelers are not as price-sensitive as leisure customers, Gol can pass through 70% of its fuel-cost increases through fare hikes, Lark says.
Brazil's business travelers also generate higher profits for Gol since they're willing to pay for convenience and last-minute travel.
"Our prices are 20% to 25% less than competitors on average," Lark said. "But in many of the most competitive markets where there is high demand by business travelers, our value proposition is more or less the same."
Gol's earnings in last year's third quarter rose 52% from the prior year to 41 cents a share. Revenue gained 31% to $181 million.
Analysts polled by First Call estimate full-year 2004 earnings of $1.45 a share. They expect earnings this year will grow 26% to $1.82.
Gol plans to expand service to major cities across South America over the next three years.
It began service to Argentina in December and expects to start service to Bolivia by June. The firm has no plans to fly beyond South America.
"There are 500 million people living in all of Latin America," Booth said. "Less than 10% of the population uses air service, so the potential is enormous."
http://us.news2.yimg.com/us.yimg.com/p/fi/pr/43022.gif
Low-Fare Carrier hits new heights in Brazil (http://biz.yahoo.com/ibd/050215/newamer_1.html)
Are any forum members familiar with operations at Gol? In competing with Brazilian national airlines, do you think they are a sustainable operation? What are their working conditions? For a Latin American LCC, are employees paid similar to what other Brazilian airline employees are paid, or is renumeration in the form of bags of peanuts 2X a month?