Zacks Commentary

GOL Linhas Aéreas Inteligentes S.A. (GOL), the largest low-cost and low fare airline in Latin America, is shutting down the operations of its subsidiary, Webjet. The discontinuation of the brand will lead to a loss of around 850 jobs, including those of flight & cabin crew and maintenance personnel.

The company is of the opinion that the fleet of the subsidiary is no more viable as per the new cost standards of the Brazilian sector. Webjet’s fleet consists mostly of Boeing 737-300 aircraft, which are not only technologically obsolete but also fuel inefficient.

Announcing the winding up on Friday, GOL stated that from now on the company will take care of all the air transport as well as associated services for the passengers of Webjet. The company will also be responsible for the flights booked for Webjet.

GOL also said that the move will have its impact on the costs of the company, particularly in the coming quarter, without affecting the following quarters significantly. The shut down is also expected to increase the operational efficiency of the company in the future.

As of date, Webjet had a fleet of 20 Boeing 737-300, out of which 16 are expected to be returned by the company in the first quarter of 2013, with the remaining to be returned in the first half of the same fiscal year.

Now, having to deal with a smaller fleet, the company anticipates reducing the Available Seat Kilometers (ASK) for its domestic supply by 5%-8% year-on-year in the first half of 2013, leading it to reduce costs and increase profitability.

We currently have a Neutral recommendation on GOL. The stock also bears a Zacks #3 (Hold) Rank. The company’s prime competitors Copa Holdings SA (CPA) currently has a Zacks #3 (Hold) Rank and LAN Airlines S.A (LFL) has a Zacks #4 (Sell) Rank.