The bottom line Which was dissapointing but understandable considering Varig. I agree with idea to dump foreign travel routes outside of South America.
SAO PAULO, April 30 (Reuters) - Brazilian airline Gol Linhas Aereas (GOLL4.SA: Quote, Profile, Research)(GOL.N: Quote, Profile, Research) 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 3.5 million reais ($2.0 million) in the first quarter, compared with a profit of 116.6 million reais in the year-earlier period and a loss of 24.2 million reais in the fourth quarter.
Gol, the second-ranked airline in Brazil after TAM Linhas Aereas (TAMM4.SA: Quote, Profile, Research)(TAM.N: Quote, Profile, Research), 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 Co's (BA.N: Quote, Profile, Research) 737 family, which are more fuel efficient.
Gol's bottom line has suffered since it bought last year Brazil's former flagship airline Varig, which was on the verge of collapse after years of mismanagement. The company is currently trying to overhaul Varig and bring its cost structure down in line with Gol's.
Excluding Varig, which canceled three international routes in March and has plans to scrap two more because of soaring fuel costs, Gol said it would have made a net profit of 200.1 million reais ($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 on a conference call.
My prediction that the takeover of Varig was a mistake has come true in spades. The company bought problems that they could have avoided. The sooner GOL closes down Varig's European routes, the sooner they can get back to profitability. In fact, I'm not at all sure they should keep the Varig name alive. Varig's reputation for mismanagement was legendary while GOL has enjoyed a reputation for shrewd management (until they took over Varig.)
I fully agree with your views. Varig was very cheap and the brand reputable somehow. It is a traditional name. But perception in the latter years of Varig was poor and recover the name is hard. What was apparently cheap ended up costing GOL a lot of money, so the earlier they close the european routes and Mexico and concentrate in Latin America the better. I still think they can make some money in south America but I have to admit that the chunk of its business is domestic market in brazil which is increasing massively. I am careful optimistic but have to admit that the pain was great in the past months. Too much volatility helped by oil price never ending increases. This may be about to change as GOL slowly returns to profitability in the 3rd quarter after 3 quarters of losses. The market used to pay a premium for GOL against TAM. This is no longer the case. They sell for similar P/Es if I am not mistaken!