Skift Take

Having the weight of a BRIC nation's aviation growth on your wings isn't easy, but Gol has been able to benefit long enough with the association that it should be able to weather this storm.

Gol Linhas Aereas Inteligentes SA, Brazil’s biggest airline, dropped for a sixth day as it said it will reduce domestic flights more than previously planned.

The shares fell 7.6 percent to 6.73 reais at the close of trading in Sao Paulo, the lowest since April 2009. It was the second-worst performance on the Ibovespa stock benchmark, which lost 2.3 percent.

Gol plans to cut domestic flights by as much as 9 percent in 2013, compared with a previous estimate of 7 percent, according to a regulatory filing today. The airline, which has been reducing service to stem operating losses that swelled to a record 906 million reais ($407 million) in 2012, said the reduction will allow it to meet this year’s target for an operating margin ranging from 1 percent to 3 percent.

The airline also reduced its estimates for economic growth this year in Brazil and for the foreign-exchange rate, a sign that it might not reach financial targets, according to Felipe Rocha, an analyst at the brokerage firm Omar Camargo. “That makes it harder to achieve the desired profitability,” he said in a phone interview from Curitiba, Brazil.

The company now expects Brazil’s gross domestic product to expand between 2 percent and 2.5 percent, down from a previous projection for expansion between 2.5 percent and 3 percent. The real’s average exchange this year will be between 2.08 and 2.18 per dollar, compared with a prior forecast of 1.95 to 2.05, according to the filing.

Currency volatility

Gol had 73 percent of its obligations denominated in foreign currency in the first quarter, according to a May regulatory filing. The company gets about 93 percent of revenue in reais.

Volatility in the real has been hurting Gol’s stock, and shares will continue to be affected until it becomes more clear what the exchange rate will be, Chief Executive Officer Paulo Kakinoff told investors at an event today in New York.

“Extremely high exchange rate volatility affects our stock price directly,” Kakinoff said. “We’re cutting flights that are less interesting economically speaking. That benefits the margins.”

The Sao Paulo-based airline’s shares have lost 48 percent this year while the Ibovespa dropped 25 percent. The real has slumped 7.9 percent in 2013 to 2.2268 per dollar.

Editors: Richard Richtmyer, Dennis Fitzgerald. To contact the reporters on this story: Julia Leite in New York at [email protected]; Denyse Godoy in Sao Paulo at [email protected]. To contact the editor responsible for this story: David Papadopoulos at [email protected]. 

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Photo credit: Brazilian airline Gol aircraft prepares to land at Congonhas airport in Sao Paulo. Nacho Doce / Reuters

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