What is going on at Gol?? How did it go so wrong so fast?


http://blogs.ft.com/beyond-brics/201...6/gol-in-a-tailspin/#axzz2Oi7Cl2iq
"According to its fourth quarter results released on Tuesday, Gol suffered a net loss of R$447m ($222m) in the three months to December. The company ended 2012 with a full-year net loss of R$1.5bn, twice its net loss in 2011.
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What they report isn't always accurate. While I'm not doubting the info, it's common for GOL and TAM to price tickets way above the real cost, and if they're not sold, list the whole ticket value as loss, instead of just the operating cost. I for one have not been in one plane in Brazil in the last 3 years that wasn't loaded at least to 90%. However, a quick guess as to their loss would be the rising of competition. Avianca and Azul are gaining space fast, and with their often better prices, drawing the customer base away from GOL and TAM.

Quoting Reffado (Reply 1): it's common for GOL and TAM to price tickets way above the real cost, and if they're not sold, list the whole ticket value as loss, instead of just the operating cost.

I'll admit, I don't know Brazilian accounting standards, but this makes no sense, and seems to violate every accounting principle out there.

Expansion occurred too quickly, particularly the Varig deal?

They seemed to be doing well inj their previous form until they took on the added weight of dual brands and other inititives, but airline markets are dynamic so things can change quickly.

Quoting homSar (Reply 2): Quoting Reffado (Reply 1): it's common for GOL and TAM to price tickets way above the real cost, and if they're not sold, list the whole ticket value as loss, instead of just the operating cost. I'll admit, I don't know Brazilian accounting standards, but this makes no sense, and seems to violate every accounting principle out there.

Brazilian accounting standards are basically IFRS, and if this announcement is a stock exchange announcement then it will have been audited and will be IFRS compliant.

My two centavos? Gol is a bit of a basket case, strategy gone in some strange directions over the last 5/6 years and there is a lot of overcapacity in the domestic market still. And, based on casual observation, Gol perceives itself as being the inferior member of the G3/JJ duopoly as its prices are invariably significantly cheaper than equivalent TAM flights. (On which note, it will be interesting to see TAM's results if they haven't been reported yet - assuming they are reported separately to LATAM's). Also, could be one off costs from shutting down Webjet, but I wouldn't have thought they would be THAT significant.

Quoting homSar (Reply 2): I'll admit, I don't know Brazilian accounting standards, but this makes no sense, and seems to violate every accounting principle out there.

GOL's accounting practices are not the issue here. GOL's losses are real. The Company cited i) higher fuel costs; ii) a depreciated BRL relative to USD; iii) higher airport fees; and iv) rising competition as justifications for its operating losses in 2012.

The Company's accounting practices are fine: GOL is publicly-traded on the NYSE and it files with the US Securities and Exchange Commission. It reports under International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board – IASB. Its accounts are audited and its auditor provided an unqualified opinion on its 2012 accounts.

Hopefully Delta has some advice for Gol on how to profitably curtail capacity rather than putting 'bums' in each seat at any price. Delta seems to have done quite well with this strategy in the past few years.

Quoting Coronado (Reply 6): rather than putting 'bums' in each seat at any price.

The problem is that they are putting few bums on their seats. The load factor fell to 64% in January, which is surprising considering that January is high season at its peak in Brazil.

Quoting Reffado (Reply 1): Avianca and Azul are gaining space fast, and with their often better prices, drawing the customer base away from GOL and TAM.

My feeling is that they haven't found their space among TAM and Azul/Avianca.

TAM is still the reference airline in Brazil, the only one doing real long-haul today. Azul has grown really fast, they are strong in SDU, CNF and VCP, and they have a very fresh, smart image that I think it is easy to connect with customers. O6 can eventually be more integrated with Avianca and Star, moving towards a more Latin American regional air carrier and somehow competition to LATAM (at least at regional scale).

I don't see where G3 fits among all those 3 carriers that have quite a precise direction and niche. Do they plan to enter international markets with those weird Brazil-SDQ-Florida routes? Do they want to become the reference low-cost carrier in Brazil (I think Azul is getting that "prize")? Just look at their corporate image... it is so unappealing.

Quoting PDPsol (Reply 5): The Company cited i) higher fuel costs; ii) a depreciated BRL relative to USD; iii) higher airport fees; and iv) rising competition as justifications for its operating losses in 2012.

Every carrier cites those things every quarter--this seems much bigger than the usual culprits.

Quoting SCQ83 (Reply 8): Do they plan to enter international markets with those weird Brazil-SDQ-Florida routes? Do they want to become the reference low-cost carrier in Brazil (I think Azul is getting that "prize")?

Their route planning is really schizophrenic.

GOL's main problem is they rely too much on domestic traffic (which has been stagnant and facing increased competition) and not enough international. TAM implemented capacity discipline on their domestic operations since they saw growth domestically had decreased quite rapidly especially with the Azul-Trip merger and Avianca Brazil competition.

"TAM’s outlook is also much brighter than Gol as the carrier has a much bigger international operation. Demand for international services in Brazil, particularly to and from the US, remains relatively strong. Competition is less intense in international markets and on many routes demand is currently exceeding supply."

Found here:
http://centreforaviation.com/analysi...o-take-market-share-from-gol-95119

Quoting delta2ual (Reply 10): GOL's main problem is they rely too much on domestic traffic (which has been stagnant and facing increased competition) and not enough international.

Perhaps but most of G3's international attempts have been quickly curtailed or canceled, which is also weird to me when you're competing against, say AR, PU, and the flavor of the day in Bolivia.

I have recently flown TAM 3 times RT on the Ponte Aeria (if they still use that term) between SDU and CGH and the aircraft was full, every seat, nose to tail. two weeks ago i flew TAM from GIG to FOR return on an A320. PACKED every seat each way. MY "cheapest" refundable RT to Fortaleza was $1200 USD. Almost a RT coach seat from NY.

I fly TAM for now because I can put my miles on my UA Mileage Plus. In the future, when TAM departs Star Alliance I don't know what I will do, it's not clear to me yet how Star will fill that hole.

I will say this about GOL, when parked next to them their 737's look brand new and glisten in the Brazilian sun as do the handful that are branded VARIG. I don't imagine the interiors are much better with 2" between seats and no F product. To me it is shocking that Brazil, in this heyday of big business, does not offer even 4 seats in a F configuration on a narrow body domestic aircraft. Seems like an open door for Avianca.

Brazil clearly does not need a United p.s. even though Brazil is the same size as the 48 states, but a 4 hour flight to Fortaleza could easily sell either a premium economy (ala; european F) or a domestic style USA seat in a reasonable number.

Quoting MaverickM11 (Reply 11): Perhaps but most of G3's international attempts have been quickly curtailed or canceled, which is also weird to me when you're competing against, say AR, PU, and the flavor of the day in Bolivia.

G3 also competed with either AV-TA and/or LATAM on the GRU-BOG, GRU-LIM, GRU-SCL, and GRU-EZE-SCL routes.

I have frequently bought tickets within Brazil and the fares amaze me. The prices are so high, it's crazy. There are very cheap fares offered, but always seem sold out. Maybe the problem is yield management, lower fares and increase load factor.

On every flight I have been on, it has been packed, GOL or TAM, makes no difference. I bought tickets on Azul as well, due to the price, but they were not cheap either, about $500 USD from Sao Luis to Campihnas (Sao Paolo) RT. The others were far more expensive and this is 30 days in advance.

If with high fares, GOL has losses and low load factors, it's bad yield management in my book, not the market or demand. How would Azul have managed so well if that weren't the case? Avianca Brasil is also growing strong. Clearly the market is strong.

There must be a reason why GOL is losing market share to others. My hunch is very bad yield management as their product is as good as anyone's with a bunch of brand new 737 planes a good safety record. They need put more bums in the seats and not shoo them away with ridiculously high fares, IMHO. I could be wrong.

Quoting Reffado (Reply 1): What they report isn't always accurate. While I'm not doubting the info, it's common for GOL and TAM to price tickets way above the real cost, and if they're not sold, list the whole ticket value as loss, instead of just the operating cost. I for one have not been in one plane in Brazil in the last 3 years that wasn't loaded at least to 90%. However, a quick guess as to their loss would be the rising of competition. Avianca and Azul are gaining space fast, and with their often better prices, drawing the customer base away from GOL and TAM.

That is total nonsense. Gol's problem is more straightforward. Too much capacity and a completely demoralized workforce.

Quoting tommytoyz (Reply 14): The prices are so high, it's crazy.

Quoting tommytoyz (Reply 14): On every flight I have been on, it has been packed

Quoting tommytoyz (Reply 14): My hunch is very bad yield management

Quoting SCQ83 (Reply 8): My feeling is that they haven't found their space among TAM and Azul/Avianca.

Just absolutely amazing GOL could find itself in this position now. The domestic market is strong and growing, fares are high, occupancy is high, all a dream for a carrier.

Looking at their 2012 actual performance vs. their guidance, the CASK was not good, at 10.2, vs. guidance of 9.0 to 9.6. LF was 71%, which is not too bad and matched the minimum guidance for the year.

Quoting PDPsol (Reply 5): GOL's accounting practices are not the issue here. GOL's losses are real. The Company cited i) higher fuel costs; ii) a depreciated BRL relative to USD; iii) higher airport fees; and iv) rising competition as justifications for its operating losses in 2012.

Quoting SCQ83 (Reply 8): I don't see where G3 fits among all those 3 carriers that have quite a precise direction and niche. Do they plan to enter international markets with those weird Brazil-SDQ-Florida routes?

What are GOL 738's doing in Miami ? That has to be the worst use of 4 737's since they started makign them. GOL is a 4 hour airline not an 9 hour airline, they tried long haul with "Varig" and failed. GOL needs to stick to what knows, an LCC in Brazil and regional international markets. GOL needs to decide what its going to be, Brazil is going to be a blood bath with Azul and Avianca Brasil.

Maybe merging with Avianca or Copa is what they need to do. Since every airline not supported by their national government in Latin America is merging maybe its time for GOL to consider becoming part of a bigger group.

Gol was launched back in 2001 as a true LCLF.

They made a lot of money using the concept and taking full advantage of a new fleet and the fact their competitors had, at that time, higher operating costs. They could charge the same, and that means more profits.
During the first years, while expanding, Gol took another advantage: By 2001 Transbrasil grounded their fleet, in 2004/2005 Vasp did the same, and late 2006, Varig.
This helped to off set Gol additional offer.

Acquiring Varig routes was the first set back. They run to be able to operate all long haul even without approval to connect their domestic network. A year later they returned the majority of their 763 fleet with heavy losses. Some of them were kept in the fleet even without the right use.

Gol begin to do by 2009 the same that lead to Varig/Vasp/Transbrasil problems: entered into a race to add capacity with TAM, in a higher level than the market required at that time. With that, while Brazil experienced heavy demand and growth, both airlines run their operations with 60-65% LF during the peak years (2010-2011). Limited profits were considered good but they lose the chance to accumulate cash.
And more offer continued to be added.....
At this time, TAM was able to off set GOL's cost advantage. And new airlines born with even more efficient cost structures (Azul) or superior product (Avianca Brasil).

By 2012 both realized that they need to stop domestic expansion. But they considered different focus: TAM decided to focus on international & long haul. GOL decided to cut capacity.

GOL seems to be driven into a continuous loop of less demand: the more they cut, more connections flew with other airlines, more customers they lose, and more cuts become necessary.

Together with that, their product (specially international) is less competitive than what competitors offer.

Now they are facing hard times and while they are getting good fares on some routes, their average LF is low compared to others and their cost is too high (Break Even last quarter was 81%) as due to the cuts, their planes now fly less
(11.8 now, 13h/plane per day on 4Q/2011).

What they are trying to do is revamping their network (focusing more on GRU) and continue with cost cuts. The problem is that, they can face more passengers looking to other airlines (TAM in fact is getting advantage with GOL's cuts) and both Azul and Avianca plans to add more planes to their fleets.

How i see them ? Avianca offers more room and a pleasent PTV on board. Azul offers a good legroom also plus Live TV. TAM takes advantage of a bigger network and a better international product.
Every 3 to 4 weekend, we all in Brazil know nowadays that airlines will come with special fares ( i bought CGH-GIG-CGH for just BRL 240 = USD 110 in May ) and that goes against very expensive fares for less than 2 weeks advance.

What they need to do ? In my view GOL needs to revamp their product, specially on international flights.

Quoting jfk777 (Reply 17): Maybe merging with Avianca or Copa is what they need to do. Since every airline not supported by their national government in Latin America is merging maybe its time for GOL to consider becoming part of a bigger group.

G3 as CM Brasil?
That'd be something!
At least they are both B737 airlines and CM is in desperate need of more frequencies to Brazil.
Just hope that if CM and G3 talk, CM already knows how to not repeat what went wrong when buying P5 Aerorepública Colombia.
CM and G3 started some kind of code-share when CM opened GRU and needed to connect passengers to/from GIG and that happened because JJ TAM ran away from any possible code-share w/CM.
AV doesn't have B737 so for that part Avianca Brazil may encounter some hassle if trying to swallow G3 instead of growing itself alone.

Quoting LipeGIG (Reply 18): (11.8 now, 13h/plane per day on 4Q/2011).

That's no way to cut costs. That's very poor fleet planning and utilization.

The fact they are losing market share to others speaks for itself. It's the price structure. If the product were bad, you could throw that into the mix. But that's not it as the product is just fine.

Maybe it's various management decisions, on the expense and revenue side combined. There is no external reason this should be happening to GOL, as the competing airlines clearly show.

Quoting tommytoyz (Reply 20): But that's not it as the product is just fine.

Not necessarily. Gol is currently the only airline that offers BOB in Brazil. I haven't seen any study about how this affecting the perception of the flying public. Perhaps BOB is being welcomed by a good part of Gol's flyers, but it may be alienating many others.
Brazilians still think that a meal, even if it isn't good or is only a snack, is part of the package. Not doing so is seen as being petty, cheap and unwelcoming.

Quoting tommytoyz (Reply 20): That's no way to cut costs. That's very poor fleet planning and utilization.

Agreed. i just show the fact that they cut flights without adjusting the fleet the right way.

Quoting tommytoyz (Reply 20): The fact they are losing market share to others speaks for itself. It's the price structure. If the product were bad, you could throw that into the mix. But that's not it as the product is just fine.

They lose market share because they are the ones cutting a lot. Others are just keeping their operations and in fact their LF is improving !
How to explain a 12-15 points difference between market average international and GOL international Load Factor ?

GOL int'l network - Daily Flights

6 GRU-BUE
1 GIG-BUE
1 GRU-COR
1 POA-BUE
1 GRU-MVD (soon 2)
1 POA-MVD
1 GRU-ASU
1 GRU-VVI
1 GRU-CCS
1 GRU-SDQ-MCO
1 GIG-SDQ-MIA
1 VCP-CWB-BUE

This all generates:
57.3% Load Factor in 02/2013.

I always enjoy reading these very well informed discussions about Brazil. I know nothing about it, other than what I read here thanks to the excellent contributions.

Can someone explain a little more about the competitive landscape in Brazil? My impression was that Brazil looked a bit like Europe. GOL is the easyjet, i.e. starting out as a real LCC but its network and service level was now more or less standard. TAM and Avianca are "legacy" type products, but with service levels very close to GOL. TAM is obviously the big boy in the market, and Avianca hardly relevant without any clear positioning/strategy/network. More an investment opportunity for the Summit group than a significant market player in the Brazilian market. They're not even part of Star Alliance and it is unclear whether they ever will be.

But it looks as if my image is all wrong. Will GOL lose market share mostly to TAM or to Avianca? So what is Avianca's role now and in the future? Is there really a service level difference between GOL and the other players?

Thanks for some explanations, makes it so much simpler for outsiders to understand.

Quoting VC10er (Reply 12): To me it is shocking that Brazil, in this heyday of big business, does not offer even 4 seats in a F configuration on a narrow body domestic aircraft. Seems like an open door for Avianca.

Perhaps it would be too expensive to offer a J class product for domestic flights in Brasil? But for me it would be a very welcoming and a strong differentiation to the rest in Brasil. Avianca Colombia and Taca already offer J class seats on narrow body domestic aircrafts. So it is not a new thing for the airline.

Quoting mozart (Reply 23): So what is Avianca's role now and in the future?

Still unclear of Avianca Brasils future. I still think the airline is too small, and will have to grow faster to become a significant player on the market. But most likely and the best candidate to be part of Star Alliance in the near future after TAM leaves. Avianca Brasil will also receive its first A330 this year out of 6. We will probably see international expansion with these aircrafts. Probably first in Latin America and then USA. TAP will be a key player if they decide to sell to Synergy Group in their next attempt. This could be Avianca Brasil best allied friend for European connections.

mozart,

One small contribution on my part: It is important to understand that the route network of all airlines in Brazil is still in dominated by the hub and spoke type network - not point to point, like is happening more and more in the USA and Europe.

For example. This creates a lot of very long and inconvenient routings, especially within the north east. The biggest hub is Sao Paolo, and there are others in Belo Horizonte, Campihnas, Brasilia and Rio. None are in the north east or the interior. Those hubs are all within a short distance of Sao Paolo.

What this means is that traveling between smaller cities, like from Sao Luis and other cities, often requires a trip down to Sao Paolo (3 hours) and then back up north again. Sao Luis itself is not so small with maybe 1-2 million people. To me, the route system is like 1960s USA or Europe. In my opinion, what they need is more point to point services.

For instance between Sao Luis to Fortaleza, there are no nonstop flights. By road it takes 14-20 hours. The cheapest OW fare for tomorrow is on TAM at $1,131 with 2 plane changes and a travel time of 20 hours. GOL is at $1,297 and 27 hours. Those are USD figures. These fares are insane and just the 1st I randomly picked out at Kayak.

I just tried Recife - Belem. There are no non stop flights between those two cities either. Maybe part of the reason why the fares are so high and GOL is suffering a loss anyway, is because the route structures are very poor, with long routings through at least 1 hub in many cases. Unless you are traveling to a hub anyway, like Sao Paolo.

Brazil needs more WN and Ryanair like point to point service. That's totally missing right now.

Quoting tommytoyz (Reply 25): For instance between Sao Luis to Fortaleza, there are no nonstop flights.

TAM operates SLZ-FOR 2x daily with the A-320.

Quoting tommytoyz (Reply 25): I just tried Recife - Belem. There are no non stop flights between those two cities either.

However there are direct flights between REC and BEL. TAM operates REC-FOR-BEL 2x daily with the A-320.

Quoting SCL767 (Reply 26): TAM operates SLZ-FOR 2x daily with the A-320.

Exactly. JJ3536 / 3537. However, the point made by tommy still stands. The routings are horrible for several destinations.

Quoting LipeGIG (Reply 22): GOL int'l network - Daily Flights 6 GRU-BUE 1 GIG-BUE 1 GRU-COR 1 POA-BUE 1 GRU-MVD (soon 2) 1 POA-MVD 1 GRU-ASU 1 GRU-VVI 1 GRU-CCS 1 GRU-SDQ-MCO 1 GIG-SDQ-MIA 1 VCP-CWB-BUE This all generates: 57.3% Load Factor in 02/2013

How profitable is this schedule ? Sounds like a royally huge dog.