Air Transport World

Winning Gol! Brazil's low-fare carrier soars on global IPO as it rewrites the rules of competition.(Gol Linhas Aereas Inteligentes S.A.)(Company Profile)(Cover Story)

If the saying "think globally, act locally" is a valid proposition in the airline business, then Gol Linhas Aereas Inteligentes S.A.--translated as Gol: The Intelligent Airline--is doing its part to make it happen.

With a highly successful global IPO already under its wing, Latin America's thriving low-cost carrier's next big step is to bring its brand of competition to other countries in the region. Although launch of service between Sao Paulo and Buenos Aires is surely only a first step in Gol's assault on South America's legacy industry, it will mark yet another achievement in what has been a remarkable year for the airline, which started flying in January 2001 and operates around 210 daily flights to 29 cities with a fleet of 22 737-700s/-800s along with three 737-400s on short-term lease.

The good news began with the announcement in April of the impressive results of the year before. In 2003, Gol earned 175.4 million reais ($60.3 million), a fivefold increase over earnings of R$35.4 million in 2002. Revenues doubled to R$1.4 billion and the airline achieved an operating margin of 24.4%--second only to Ryanair. And during a year in which Brazil's domestic industry actually contracted 6.2% in terms of RPKs, Gol's traffic jumped 53% and its market share grew from 11.8% to 19.2%, making it the third-largest domestic airline after TAM and Varig.

Gol continued to soar in the first half of 2004, earning R$163.9 million versus R$14.9 million in the year-ago period. In the second quarter ended June 30, it even edged out Ryanair with a net profit margin of 19% versus 18.1% for the Irish LCC, and boosted its domestic market share three more points to 22.3%.

In May, the airline took a major step toward its goal of operating a 69-aircraft fleet by the end of the decade by placing an R$8 billion order for 15 firm 737-800s with 28 options, to be acquired through a mix of operating leases and direct purchases. Up to 85% of the purchase price will be financed with US EximBank support with the remainder coming from the carrier's own cash resources.

But the year's high point was the completion ill June of a simultaneous public offering of nonvoting preferred stock on the Sao Paulo Bovespa and New York Stock Exchange that raised $151 million for the airline and $115.5 million for selling shareholders. "We exceeded expectations in terms of the size of the deal," says CFO Richard F. Lark Jr., a US expatriate who previously worked for Morgan Stanley. …

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