The Brazilian airline operator GOL Linhas Aereas Inteligentes S.A. (GOL: 12.84 -0.13 -1.00%) reported an increase in passenger traffic for June 2010 compared with June 2009.During the month, total traffic expanded 10.0% year over year, based on the company’s better positioning in its markets and increased demand driven by the recovery in the Brazilian economy. Domestic traffic grew 8.3% while international traffic topped with a 24.5% growth year over year.
GOL recorded an increase in traffic in all the three months of the second quarter of fiscal 2010. During April 2010, total traffic swelled 26.5%, with domestic traffic increasing 29.6% and international traffic rising 5.6%. In May 2010, traffic expanded 14.5%, with domestic and international traffic increasing 14.9% and 11.5%, respectively.
The increase in international demand was due to adjustments in the company’s network, which now includes new routes from Brasilia to the Caribbean. The repositioning of sales channels, including the opening and renovation of airport stores abroad in order to adjust them to GOL’s business model and the client profile of the location in question, was also favorable. The World Cup was also a reason for the increase in international traffic.
GOL remains better positioned to capitalize on the increase in discounted air travel in Brazil and the rest of Latin America, given its strong market share and efficient operations. We expect the company to experience growth in the short-to-medium term given its continued investment in fleet renovation and international agreements.
Moreover, other Latin American and Chinese airline stocks performed well in 2009. We believe that 2010 may be another profitable year for the airlines industry in the emerging markets, provided the overall economy continues to grow. Oil prices have also stabilized at mid-70s, which is another advantage. Besides, the economic growth in emerging markets will be higher than in the developed markets.However, we maintain our Neutral recommendation on GOL based on intense competition, particularly from TAM S.A. (TAM: 15.21 +0.07 +0.46%), a Brazilian airline company, which provides air transportation services in both the domestic and the international markets.
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