Gol Linhas Aéreas Inteligentes S.A. (NYSE:GOL) Q3 2023 Earnings Call Transcript

Gol Linhas Aéreas Inteligentes S.A. (NYSE:GOL) Q3 2023 Earnings Call Transcript November 6, 2023

Gol Linhas Aéreas Inteligentes S.A. misses on earnings expectations. Reported EPS is $-1.27 EPS, expectations were $0.04.

Operator: Welcome to GOL Linhas Aéreas Conference Call to discuss the Third Quarter 2023 Results. This morning, the Company released its results. After GOL's presentation, we will begin the question-and-answer session initially for analysts and investors followed by the journalists present. At which time, further instructions will be provided. This event is being broadcast via Zoom and can be accessed on the Company's website in voegol.com.br/ir. We informed you that all participants will only be listening to the event during the presentation, and then the participants will also be able to send their questions on the platform and they will be answered by the management during this conference call or by GOL’s Investor Relations team after the end of the conference call.

From now on, participants are already free to submit questions through the Zoom platform. All you have to do is click on the Q&A button located in the bottom bar of your screen and type your question. Before proceeding, I would like to emphasize that the forward-looking statements are based on the beliefs and assumptions of the Company's management and the current information available to the GOL. These statements may involve risks and uncertainties as they relate to future events and therefore depends on circumstances that may or may not occur. Investors, analysts, and journalists should take into account that events related to the macroeconomic environment, the segment and other factors could cause results to differ materially from those express in the respective forward-looking statements.

Now, I give the floor to Mr. Ferrer. Please, Mr. Ferrer, you may begin your conference.

An Airbus single-aisle aircraft overfly a major city, showcasing the airline services of the company.

Celso Ferrer: Good morning, everyone. Thank you for your availability today on our earnings call. This morning, we publish our third quarter earnings release and a presentation on GOL’s Investor Relation websites. So, we will just make a few brief comments here and get straight to your questions. The third quarter was another solid milestone to demonstrate that GOL’s, strategy and execution in adding profitable growth is generating consistent results as we expected. This has been achieved by the trust we have obtained from our customers, investors, suppliers, lessors, and in particular our teams who have done an impressive job and whose dedication has been the key factor that continues to drive us in this space of recovery.

Between July and September, GOL transported more than 8 million passengers in more than 57,000 departures. This represents a year-over-year increase of 16% and 13% respectively. We continue to launch and inaugurate new base in the regional market such as cities as Uberaba, Minas Gerais and Araçatuba in São Paulo. In the international markets, we increase our ASK supply by 5% mainly in South American markets compared to the third quarter of 2022. We continue on our discipline path to profitable capacity recover as can be seen, the 2.4 percentage point increase in our load factor while our aircraft utilization rate increased it by 2% to 11.3 hours per day. Yield grew 4.5% in the period while our PRASK is up by 7.6% and our RASK increased 10.7%.

This demonstrates the potential we have been achievement through the initiatives to diversify other revenues with Smiles and Gollog businesses. The first Smiles which has a directly relationship with the perception of a better flight experience expanded its customer base by more than 80% year-over-year and reached more than BRL1 billion in revenue. Our Gollog cargo unit more than doubled its revenue even with our organic capacity still constraint by this lower pace supply of our passenger aircraft's fleet. We have further expanded our partnership with Mercado Libre, which has already provided Gollog with a leadership in cargo volume shares in tones per kilometer, and we have been exploring new opportunities for cargo synergies between the dedicated fleet of freighters and the space in the cargo pallet of the GOL’s aircraft.

In addition, this partnership has the option to expand up to 6 more incremental aircraft reaching a fleet of up to 12 aircraft in the coming years. This quarter, we also maintain the growth pace of our tour operator Smiles Viagens launched at last quarter, which at this moment in addition to expanding its portfolio of products and partnerships has also been expanding directly negotiations with hotels, which are already added to more than 800 distribution agents in the Brazilian and international segments. Combine it, all the revenues represents a 65% year-over-year increase to BRL413 million. For another consecutive quarter, we achieve a record revenues for a third quarter of BRL4.7 billion with an EBIT operating margin of 17.7%, an increase of more than 11 percentage points comparing to the previous years, positioning GOL among the companies with the best operating performance in the sector.

The activities of our network and positioning in the main markets of high traffic and demand for leisure and business segments, has been the main differentiator for our revenue performance. As corporate demand speaks up, the number of takeoffs has increased it by 13% with a reduction in the average 10th length of 7.5%, and which has impact on our cost. Our CASK field for passenger operation increased 4.9% comparing to third quarter 2022, mainly due to return of four aircraft this quarter, and lowered dilution of our fixed costs that are still impacted by a number of non-operating aircraft that remain temporarily and in our fleet. Without the aircraft returns in this quarter, our CASK would represent stability in the same comparison even so we managed through our discipline capacity management to preserve profitability with yields that also increase in the same proportion with higher occupancy rates, which grew 2.4 points comparing to the previous year.

While our ASKs increased by 5.2% comparing to last year, they are still 19.3% lower comparing to third quarter 2019. In terms of operating fleet, we operated 108 aircraft in the third quarter 2023, while in the third quarter in ‘19 we had 115 operation aircraft 7 more than this quarter. We are committed to increase the productivity of our fleet while we operate with temporarily low capacity and to incur in higher costs for returning operating aircraft. We expect a transitory impact of our ex-field costs to the levels higher than 2019 levels. We are focused on resuming CapEx discipline. The rightsizing of our fleet, we will allow to deliver even higher levels of profitability and to optimize its low cost business model supported by higher aircraft utilization.

We believe this is an opportunity to upside in cost efficiencies that does not existent for our competitors who are already pushing to the upper end of their historical fleet utilization. The industry has been impacted by uncertainties in the schedule of delivers of new aircraft by manufacturers. In our case of a total of 15 aircraft schedules for the year of 2023, GOL has so far added only one Neo 737 MAX8 aircraft to our passenger fleet. On another side, as part of our fleet renewed plan and recovery of our productivity and operation efficiency, we returned four 737NGs aircraft in this quarter and seven since the beginning of the year. We will continue with the plan to replace NGs with MAX over the next few quarters. As part of the exclusive agreement with Mercado Libre for cargo transportation, we received the fifth 737-800BCF aircraft this quarter, and in the month of October, we received the sixth greater aircraft completing the commitment of six aircraft for the year 2023.

We have invested in improving our digital channels, which have reached the highest level of self-services. As capacity increase our fleet returns to 2019 levels, we believe that our dedication to cost efficient and our team's commitment to provide the best customer experience will reinforce GOL’s already consolidated competitive position in the market. In terms of discipline and commitment to execute by the GOL team, we will continue on the right track with our plans to continue to be the benchmark for the lowest unit cost in the region. Excluding the effects of the freighter fleet, our total unit cost decreased by 9.5% comparing to last year. The consistent results we have presented in recent quarters are important for the recovery in our cash flow from operating activities, which reached BRL0.9 billion in the quarter.

Finally, we would also like to highlight that this October we renewed for another 10 years our exclusive commercial agreement with Air France-KLM, which represents the expansion of the co-share that will provide better connectivity to more than 125 destinations in Europe and Brazil, and also in the future, new destinations through Latin America. This is strengthening of the partnership also provides for the enhancement of joint sales and more benefits for customers of GOL, Smiles and Air France-KLM, Flying Blue loyalty programs as well an expansion of the Air France-KLM workshop existing engine maintenance support for GOL’s CFM56 and LEAP engines. We are sure that the sum of the initiatives we have taken to increase our productivity will be fundamental to take GOL to a new level in the coming months.

I will now turn the floor to Mario who will represent some other highlights.

Mario Liao: Thanks, Celso. I want first to start to thank our entire GOL team for this very incredible hard work and dedication during this quarter. They have been doing excellent and tireless work to improve our operational efficiency in our client's experience, which has been reflected in the achievement of record net revenue in this Q3 and consistency of margins quarter-over-quarter, and even the EBIT and EBITDA margins reaching a strong levels of 17.7% and 26.8% respectively. Our EBITDA for the quarter was BRL1.25 billion while operating profit was BRL825 million. Our yields and RASK also reached a record levels growing 4.5% and 10.7% respectively to BRL47.43. We reached BRL5.4 billion in sales volume this quarter demonstrating that future booking curves remain strong, and we have continuously high load factors.

Our demand in domestic market continues to grow consistently and resiliency. We had the best our GOL ever reported to ANAC with 8.2 million passenger support in Brazil. In addition, business travel saw also 17.3% increase compared to the previous quarter and continues to improve consistently as companies continue to show return to office initiatives, with a comprehensive and proven business strategy together with the most-qualified team in the industry have created a healthy combination of capacity recovery and yield growth. Our total unit cost was decreased by approximately 8% year-over-year helped by the decrease in the jet fuel prices during this quarter. We are committed to continue to deliver the best cost performance in the industry. We also this quarter completed two major liability management transactions.

The first one was related to the refinancing of a BRL1 billion batteries with the residual local banks, which resulted in a 30 months extension, as the new term now is June 26. And we have the support of those local debenture banks and allowing us to better adjustment of the debt to the GOL's growing cash flow. The second was the completion of the conversion of BRL1.2 billion of SSNs, senior secured notes, into a convertible debt instrument, the ESSN, maturing in 2028 so no change in terms of the terms and condition of the SSN. In the middle of this process, a total of 992 million of GOL's warrants has been subscribed and has been issued, which may be converted into shares in the future at an exercise price of BRL5.82 per share, which would result in a pro forma bill in a reduction of approximately BRL6 billion in gross total indebtedness, the total leverage.

Strengthening our balance sheet remains our top priority. Our fundamentals continue to improve as we reduced our leverage to 4x, as of September 30th this year, this third quarter from 9.5x by the end of last year. So, it's almost 5x a reduction in terms of leverage. Many impacted or contributed by the recovery in our EBITDA, and the reduction of net debt in this period. To conclude my highlights and in order to provide the usual transparency to our investors, we are predating our financial outlook for this year, 2023, reflecting the nine months results that has been already delivered with a more challenging scenario for fuel costs for 4Q ‘23 that practically offset the benefit generating throughout the second quarter ‘23 mostly, and also the impacts on capacity derived from the quarantine certainty in our fleet plan that generate a lower dilution in our fixed cost especially on the CASK ex-fuel impact for the four 4Q ‘23.

Now I return the floor to Celso.

Celso Ferrer: Thank you, Mario. We will maintain our dedication to initiatives that promote a broader diversification of revenue sources, and above all, those that lead to improvements in productivity and efficiency. Our operation continues to build on the solid foundations we have established in the recent years and our commitment to provide reliability, profitability, and strengthening our balance sheet. Our business model has proven to be robust with a strong track records of execution and industry leadership. We are confident in our ability to deliver significant improvements, particularly in capturing upsides for reduction of our ex-fuel CASK. So to conclude, I would like to thank our Eagles team for the new record on revenues that higher margins and the excellent experience they provide daily to our customers.

I'm extremely proud of this team's roles in rebuilding the best performing airline in the region. Their dedication is what continues to prop us to the top. Carrey, you can start the Q&A cap question.

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