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Gol Linhas Aereas Inteligentes SA posted a record quarterly loss and cut its profitability outlook as the real’s plunge increased the financial burden on Brazil’s biggest airline.
The Sao Paulo-based carrier had a net loss of 2.13 billion reais ($567 million) in the June-to-September quarter, its 15th straight quarter of losses, compared with a loss of 272.4 million reais a year earlier. Analysts at Itau BBA were expecting a net loss of 1.77 billion reais, while GBM had projected a 1.74 billion reais loss. Third-quarter sales rose 1.1 percent to 2.49 billion reais.
“Brazil’s current economic climate — with an increase in inflation, credit restriction and, above all, strong devaluation of the real — has had a direct impact on the commercial aviation sector and on our company,” Gol said in its earnings release.
The results highlight the pain from the recession gripping Latin America’s biggest economy. Unemployment in Brazil hit a 5 1/2-year high in October, while the real’s 21 percent decline against the dollar during the June-September quarter was the most among 22 major currencies, according to data compiled by Bloomberg.
The company now expects operating margins of minus 2 percent to zero for 2015, compared with positive 2 percent to 5 percent previously forecast, the company said in a separate regulatory filing Wednesday. Gol maintained its outlook for domestic available seat kilometers at zero to minus 1 percent, which it said will reduce fourth-quarter capacity by 5 percent to 7 percent.
“Due to the impact of an adverse macroeconomic scenario, GOL may revise its guidance to incorporate any developments in its operating and financial performance,” as well as any changes in interest rates, exchange rates and oil prices, the company said.
Gol shares have fallen 77 percent since the beginning of the year, compared to a 3 percent drop in the Ibovespa benchmark index. Shares rose 0.9 percent Wednesday to 3.51 reais before the earnings release.
The airline is vulnerable to foreign-exchange swings because more than half its costs are denominated in dollars and only a small portion of that exposure has been hedged, according to a Nov. 4 report by Moody’s Investors Service. Sao Paulo-based Gol generates 11 percent of its revenue in the U.S. currency, according to Moody’s.
“The exchange rate is a variable that significantly affects our results,” Chief Executive Officer Paulo Sérgio Kakinoff said in a statement. “We are working with all of our focus on mitigating the consequences of this macro scenario on our activities.”
Gol may have to cut capacity by at least 8 percent next year to mitigate the impact from currency weakness and the country’s economic slowdown, Moody’s said. Gol said in its statement that flights to Miami and Orlando will be operated only on a seasonal basis starting next month, and it’s studying whether it should continue flying to Caracas. Still, the company said it plans to add new Latin American destinations such as Havana and is considering new direct flights to Buenos Aires.
Gol’s net passenger revenue per available seat kilometer, a measure of profitability, dropped 1.6 percent in the third quarter compared to the same period a year earlier, while yield fell 3 percent. The company expects to continue cutting capacity in the fourth quarter and in 2016, Chief Financial Officer Edmar Lopes said in an Oct. 27 conference call with analysts.
The Brazilian Association of Airlines, known as Abear, said in September it would ask for a loan from the country’s aviation fund to help national carriers facing a cash deficit estimated at as much as 7.3 billion reais this year and 12.4 billion reais next year.
This article was written by Fabiola Moura from Bloomberg and was legally licensed through the NewsCred publisher network.