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Yellow Flag: Gol's Traffic Looks Soft Once Again

DM Martins Research profile picture
DM Martins Research
20.58K Followers

Summary

  • October was the worst month of operational performance in Gol's recent past.
  • Total company RPK shrank by 3%, the worst metric reading since June 2016 at least, while the international segment took a turn for the worse.
  • I fear that Gol could be positioning itself to disappoint investors in the next few months, possibly leading up to a less-than-impressive 4Q18 earnings report.

In the Brazilian airline space, those who follow me know that I haven't been much of a Gol Linhas Aéreas Inteligentes (GOL) fan. The carrier's October traffic report, released on November 6th, seems to have justified some of my caution towards the company and its stock.

As far as I can tell, October was the worst month of operational performance in Gol's recent past - since July 2017, to be more precise. Interestingly, investors seem to have reacted with disdain, as the stock has been down only roughly as much as the broad Brazilian equities market (EWZ) over the past few days.

Credit: Aviation Tribune

To be fair, Gol's southern hemisphere's spring off-season will bring with it tough comps, as traffic in the fourth quarter of 2017 was particularly strong. Still, there is little to celebrate about total company traffic, measured in terms of RPK (revenue passenger kilometer), that shrank YOY by 3% - the worst metric reading since June 2016 at least. Seat supply also declined, but not enough to prevent load factor from dipping a sizable 150 bps to 79.1% - still aligned with Gol's 18-month average of 79.3%, but far from inspiring.

The charts below, on a total company basis, provide further details. Notice the fast declining RPK and ASK growth rates represented by the red and light blue lines.

Source: DM Martins Research, using data from company reports

On the smaller international segment that represented 9% of total RPK in October, traffic took a turn for the worse. The improving trend that culminated in last month's -5% over the previous year's robust +13% met an October RPK that shrank by double digits over much easier comps. It is possible that a weak Brazilian Real and a local economy that is taking long to recover may have contributed to the international supply-demand imbalance that Gol

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This article was written by

DM Martins Research profile picture
20.58K Followers
Daniel Martins is a Napa, California-based analyst and founder of independent research firm DM Martins Research. The firm's work is centered around building more efficient, easily replicable portfolios that are properly risk-balanced for growth with less downside risk.- - -Daniel is the founder and portfolio manager at DM Martins Capital Management LLC. He is a former equity research professional at FBR Capital Markets and Telsey Advisory in New York City and finance analyst at macro hedge fund Bridgewater Associates, where he developed most of his investment management skills earlier in his career. Daniel is also an equity research instructor for Wall Street Prep.He holds an MBA in Financial Instruments and Markets from New York University's Stern School of Business.- - -On Seeking Alpha, DM Martins Research partners with EPB Macro Research, and has collaborated with Risk Research, Inc.DM Martins Research also manages a small team of writers and editors who publish content on several TheStreet.com channels, including Apple Maven (thestreet.com/apple) and Wall Street Memes (thestreet.com/memestocks).

Analyst’s Disclosure: I am/we are long AZUL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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