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GOL Linhas Aereas Inteligentes S.A. (GOL) reported second-quarter 2013 net loss per share of R$1.57 or a loss of approximately 76 cents per share, much wider than the Zacks Consensus Estimate of loss per share of 28 cents. The results, however, improved from the year-ago loss of R$2.64 (or approximately $1.27). The quarter’s results were hurt by a rise in aircraft rent and traffic service fess along with higher maintenance, materials and repair charges.

The company reported second-quarter net loss of R$433.0 million (approximately $209.5 million), better than the year-ago net loss of R$715.1 million (approximately $345.9 million).

Net revenue upped 4.6% year over year to R$1,914.8 million (approximately $926.4 million) in the reported quarter. The results surpassed our expectation of $911.0 million.

Operational Statistics

Revenue passenger kilometers or RPK – implying revenue generated per kilometer per passenger – for the quarter declined 5.2% from the year-ago quarter to 8,249.0 million. International RPK improvement of 26.1% was somewhat negated by lower revenues (down 7.5%) from the domestic grounds.

Available seat kilometers (:ASK) – that measures an airline's passenger carrying capacity – fell 2.7% year over year to 12,179.0 million, with domestic decline of 5.8%. On the international front, ASK moved up 34.0%.

During the quarter, the company’s total load factor was at 67.7%, down 180 basis points from the year-ago quarter. Load factor on the domestic arena moved down 130 basis points (bps) and internationally, it plunged 360 bps.

Margins

Operating costs and expenses fell 10.8% year over year to R$1,949.9 million (approximately $943.4 million) in the reported quarter due to a drop in fuel prices and less pressure from salaries and wages.

Second-quarter operating loss was R$35.1 million (approximately $17.0 million) compared with R$354.6 million (approximately $171.6 million) loss in the year-ago quarter.

Financials

Exiting the second quarter, GOL Linhas' cash and cash equivalents increased to R$1,162.1 million (approximately $562.2 million) from R$983.3 million (approximately $475.7 million) in the corresponding year-ago quarter. Long-term debt increased to R$5,106.9 million (approximately $2,470.7 million) from R$4,627.3 million (approximately $2,238.7 million) in the year-earlier quarter.

Deal

GOL entered into a codeshare agreement with Della Airlines (DAL), whereby the two carriers will maximize the connecting routes in the Brazil–United States passage. By August end, all spots in Brazil that are operated by Delta will be incorporated into GOL’s network. GOL initiated the ticket sales of Delta’s flights on the said route in July.

Our Take

We believe that GOL’s long-term business strategy of route expansion, strategic acquisitions and agreements with other companies are likely to create significant operational synergies.

However, various risk factors such as competitive threats, international business risks, increased aircraft maintenance costs and lower demand remain our nagging concerns on the stock. Also, the company’s increased loans and debts along with the effects of currency depreciation may cloud the near-term prospects.

GOL – which operates with other industry players such as Copa Holdings SA (CPA) – has a Zacks Rank #4 (Sell).

Other Stocks

Companies operating within this segment that are worth taking note of are US Airways Group, Inc. (LCC) with a Zacks Rank #1 (Strong Buy) and Ryanair Holdings plc (RYAAY) with a Zacks Rank #2 (Buy).