The uptick in air-travel demand in Latin America, courtesy of widespread vaccination programs, bodes well for Gol Linhas Aéreas Inteligentes GOL. However, escalated fuel costs are limiting bottom-line growth and emerge as a key downside.
Factors Favoring GOL
The gradual improvement in air-travel demand in Brazil is a huge boon for Gol Linhas, currently carrying a Zacks Rank #3 (Hold). Upbeat air-travel demand is boosting GOL’s traffic. Evidently, consolidated traffic for May surged 97.1% year over year. To match the increased demand situation, GOL is expanding capacity. In the same month, capacity grew 124.5% year over year. GOL carried 91% more passengers last month from the year-ago levels.
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Upbeat traffic in its domestic markets is leading to the rosy scenario on a consolidated basis. In May, domestic traffic and capacity improved 82.3% and 110%, respectively. On the domestic front, 84.3% more passengers boarded GOL’s flights in May 2022.
With air-travel demand improving, Gol Linas’ acquisition of domestic airline MAP Transportes Aéreos Ltd, a Brazilian domestic airline, for R$28 million is a prudent move. The acquisition is likely to boost Gol's top line by attracting additional traffic.
The Zacks Consensus Estimate for 2022 has narrowed to a loss of 34 cents from 79 cents, 60 days ago. Also, Gol Linhas currently has a Growth Style Score of A.
Escalating fuel prices pose a threat to Gol Linhas’ bottom line. Average fuel price per liter increased 60.6% year over year to R$4.48 in the first quarter of 2022. Primarily due to a significant increase in fuel costs, total operating expenses surged 50.4% year over year. Fuel price per liter is predicted to be R$4.3 in 2022.
GOL’s liquidity position is bothersome as well. At the end of the first quarter of 2022, Gol Linhas’ current ratio (a measure of liquidity) was pegged at 0.23, lower than 0.24 reported at the end of the fourth quarter of 2021. A current ratio of less than 1 (current liabilities exceeding current assets) is not desirable as it indicates that the company may have problems meeting its short-term obligations.
Some better-ranked stocks in the broader Zacks Transportation sector are Ryder System R and Southwest Airlines LUV, presently flaunting a Zacks Rank #1.
Ryder has a trailing-four quarter surprise of 48.2%, on average, with its earnings having surpassed the Zacks Consensus Estimate in all the last four quarters. R is benefiting from improving economic and freight conditions in the United States. Revenues in all segments grew (on higher rental revenues, new business and favorable pricing) in first-quarter 2022.
Recently, Ryder’s management lifted the earnings per share guidance for the second quarter as well as the full year. Favorable pricing in addition to strong rental and used vehicle sales compelled management to hike guidance.
Continued recovery in air-travel demand bodes well for Southwest Airlines. Anticipating a steady improvement in bookings, the carrier expects to reap profits in the remaining three quarters of 2022 as well as for 2022. LUV's management predicts operating revenues to increase 12-15% in the second quarter of 2022 from the comparable period’s level in 2019. LUV is seeing strong bookings for the spring and summer travel season.
The positivity surrounding the Southwest Airlines stock is evident from the Zacks Consensus Estimate for current-year earnings being revised in excess of 100% upward over the past 60 days. LUV has a Growth Style Score of B.
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Gol Linhas Aereas Inteligentes S.A. (GOL) : Free Stock Analysis Report
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