GOL to trim routes despite US$251m cash injection

Brazil’s second-largest airline, Gol Linhas Aereas Inteligentes SA (GOL), has confirmed it is to receive a cash injection of approaching 1 billion reals (US$251m) while simultaneously announcing that it will be cutting routes to seven cities and returning five aircraft to leasing companies in an effort to trim costs amidst a period of weak demand. It has also decided to drastically reduce the schedule for planned deliveries of aircraft to fifteen from one up to the end of 2017, as confirmed in a securities filing on Friday.
The Brazilian airline industry is in the grip of a deep recession which is being fuelled by the weakness of the country’s currency, the real, which has seen the cost of dollar-denominated debt, aircraft leases and aviation fuel increase substantially. The end of September 2015 saw the airline post its 15th consecutive quarter loss. The airline also confirmed this month that domestic demand had fallen 8% in the fourth quarter compared with the same period the previous year. GOL’s preferred shares are currently the second-worst performing on the Sao Paolo’s Bovespa stock exchange over the last ten years, having lost 97% of its value since 2006 and over 60% of its value over the last year
In February GOL announced the end of operations to Miami and Orlando, Florida; Caracas, Venezuela, and Aruba, and will now be terminating operations in the Brazilian cities of Bauru, Altamira and Imperatriz within the next few days – the airline has advised that passengers who already have tickets will either be refunded their money or be taken care of by other carriers.
GOL have indicated that Smiles, the Brazilian company which manages the Smiles Loyalty Program, will make an initial investment of 376 million reals (US$94) through the early purchase of frequent flyer award tickets. The remainder of the agreed cash injection will be spread out until 2017, with interest paid by GOL which is currently standing at 18.7%
GOL also followed the lead set by their biggest rival, LATAM Airlines Group SA (TAM) by trimming capacity in the second half of last year, both airline being heavily exposed to a further anticipated reduction in Latin American air travel as a result of fears over the Zika virus according to Moody’s Investor Service.