Gooooooooooooolllll (GOL)
With apologies to Andres Cantor, who will once again reach prominence among the non-soccer faithful with the coming World Cup, I scored a little GOL this morning.
Gol Linhas Aereas Inteligentes is the full name of the company -- and it is one of the more apt names, in translation it is basically "Gol: Intelligent Airline."
It's hard to argue that any airline is more intelligent than Gol right now, or more well-suited to the current environment.
For those who didn't see what I wrote when I first mentioned Gol the other day, it is basically an amalgam of JetBlue, Southwest Airlines, RyanAir and the other successful low cost airlines -- but it's in Brazil. They are basically taking the best features of many of these budget airlines that have revolutionized western air travel and combining them into one service that is dramatically changing air travel in the largest country in South America (and soon, I hope, across all of Latin America).
Gol is still quite small and an upstart in it's home country -- they operate about 400 daily flights and have a market share of around 30% at the moment, but it's a great story. The airline was founded by the Oliveira family, which owns and operates a large intercity bus system in Brazil, and this is clearly a family that understands how to build and run a business to move a large population.
You can read quite a bit about Gol in the financial press -- there was a good article in Forbes at the end of October that's certainly worth reviewing, and there are others as well. They've definitely started to catch the world's attention with their world-beating returns, and the number of US analysts on their earnings conference call has gotten significant.
Here are the things that I like most about Gol:
They're following an established strategy, albeit one that hasn't been tried in many countries, in basically mimicking the successful low cost airlines with good service, low frills, and great prices.
They're changing the marketplace -- not content to just operate a business to serve existing customers, which in Brazil might have been profitable given the significant amount of business travel, they're bringing in people who've never flown before, putting them on their first airplane, and building a big customer base. Like the "Southwest Effect" before them, they're calling this the "Gol Effect" -- it's now cheap enough for lower and middle income Brazilians to fly when they never would have considered it before. One of the great things they're doing is flying a lot of cheap overnight flights -- using planes that would be otherwise sitting on a runway and selling much cheaper flights for those unfriendly hours, thereby bringing still more fliers into the market.
They have massive insider ownership. Regardless of their actual night flights, this is not a "fly by night" company that will try to take advantage of the hot environment for Brazilian stocks, then disappear. The founding family's company owns roughly 75% of the shares and they're trying to build a business that will stand the test of time and revolutionize South American travel.
They have huge advantages over comparable US airlines in cost control. I admit, one of the things that scared me away from Gol at first was the admonition to "never buy an airline" -- it's true, in the US with the incredibly competitive market and bankruptcies everywhere it's very risky to buy even the new breed airlines. But Gol is different. Price controls from the government through Petrobras allow them to have much lower fuel costs than most of the rest of the world. A dramatically different operating environment allows them to provide world class service at developing world salaries without nearly the legacy costs of their competitors -- so their pilots, for example, make about $35,000 a year versus over $200K at Southwest. And unlike the bankrupt Varig, the flagship airline in Brazil, they don't have the same kind of legacy costs as the US carriers. That means they can operate at a profit even while charging rock bottom ticket prices -- right now, the operating margin for Gol is 37%, which blows every other airline I've ever heard of away.
Gol CFO Richard Lark gave a Presentation last night at an airline conference. (slides from the presentation are here if you don't want the audio) -- well worth reviewing, and perhaps the best overview to look at if you dont' want to go back and review all the presentations they've given recently. If you do want to see or hear some of the other presentations they've given, such as the last quarterly report, it's all available at the Investor Relations website, which unlike some other Brazilian companies (even giant Petrobras) is very friendly to US investors and easy to navigate.
If you read any of the aviation magazines or trade journals, you'll see that everyone is oohing and ahhing over Gol -- they're the new standard bearer, taking the torch from Southwest, Jet Blue and Ryanair and building new markets for air travel through low prices, solid service, and aggressive cost cutting and management.
With investing in Gol I'm aware that I'm taking on currency risk with the recently appreciating Real, as well as political risk with the leadership scandals and just the general emerging market risks that we take on when we invest outside the established western investor world. I think it's worth it for this company, and I look forward to seeing Gol flights traversing the continent to our South (and getting into North America, too, with their likely franchised entry into the competitive low cost Mexico air market next year).
So I picked up a few shares this morning -- Bought GOL today, December 9 at $48.02 (and yes, as I type this it has already fallen a bit further. I'll be keeping an eye on it to fill out my position).
Gol Linhas Aereas Inteligentes is the full name of the company -- and it is one of the more apt names, in translation it is basically "Gol: Intelligent Airline."
It's hard to argue that any airline is more intelligent than Gol right now, or more well-suited to the current environment.
For those who didn't see what I wrote when I first mentioned Gol the other day, it is basically an amalgam of JetBlue, Southwest Airlines, RyanAir and the other successful low cost airlines -- but it's in Brazil. They are basically taking the best features of many of these budget airlines that have revolutionized western air travel and combining them into one service that is dramatically changing air travel in the largest country in South America (and soon, I hope, across all of Latin America).
Gol is still quite small and an upstart in it's home country -- they operate about 400 daily flights and have a market share of around 30% at the moment, but it's a great story. The airline was founded by the Oliveira family, which owns and operates a large intercity bus system in Brazil, and this is clearly a family that understands how to build and run a business to move a large population.
You can read quite a bit about Gol in the financial press -- there was a good article in Forbes at the end of October that's certainly worth reviewing, and there are others as well. They've definitely started to catch the world's attention with their world-beating returns, and the number of US analysts on their earnings conference call has gotten significant.
Here are the things that I like most about Gol:
They're following an established strategy, albeit one that hasn't been tried in many countries, in basically mimicking the successful low cost airlines with good service, low frills, and great prices.
They're changing the marketplace -- not content to just operate a business to serve existing customers, which in Brazil might have been profitable given the significant amount of business travel, they're bringing in people who've never flown before, putting them on their first airplane, and building a big customer base. Like the "Southwest Effect" before them, they're calling this the "Gol Effect" -- it's now cheap enough for lower and middle income Brazilians to fly when they never would have considered it before. One of the great things they're doing is flying a lot of cheap overnight flights -- using planes that would be otherwise sitting on a runway and selling much cheaper flights for those unfriendly hours, thereby bringing still more fliers into the market.
They have massive insider ownership. Regardless of their actual night flights, this is not a "fly by night" company that will try to take advantage of the hot environment for Brazilian stocks, then disappear. The founding family's company owns roughly 75% of the shares and they're trying to build a business that will stand the test of time and revolutionize South American travel.
They have huge advantages over comparable US airlines in cost control. I admit, one of the things that scared me away from Gol at first was the admonition to "never buy an airline" -- it's true, in the US with the incredibly competitive market and bankruptcies everywhere it's very risky to buy even the new breed airlines. But Gol is different. Price controls from the government through Petrobras allow them to have much lower fuel costs than most of the rest of the world. A dramatically different operating environment allows them to provide world class service at developing world salaries without nearly the legacy costs of their competitors -- so their pilots, for example, make about $35,000 a year versus over $200K at Southwest. And unlike the bankrupt Varig, the flagship airline in Brazil, they don't have the same kind of legacy costs as the US carriers. That means they can operate at a profit even while charging rock bottom ticket prices -- right now, the operating margin for Gol is 37%, which blows every other airline I've ever heard of away.
Gol CFO Richard Lark gave a Presentation last night at an airline conference. (slides from the presentation are here if you don't want the audio) -- well worth reviewing, and perhaps the best overview to look at if you dont' want to go back and review all the presentations they've given recently. If you do want to see or hear some of the other presentations they've given, such as the last quarterly report, it's all available at the Investor Relations website, which unlike some other Brazilian companies (even giant Petrobras) is very friendly to US investors and easy to navigate.
If you read any of the aviation magazines or trade journals, you'll see that everyone is oohing and ahhing over Gol -- they're the new standard bearer, taking the torch from Southwest, Jet Blue and Ryanair and building new markets for air travel through low prices, solid service, and aggressive cost cutting and management.
With investing in Gol I'm aware that I'm taking on currency risk with the recently appreciating Real, as well as political risk with the leadership scandals and just the general emerging market risks that we take on when we invest outside the established western investor world. I think it's worth it for this company, and I look forward to seeing Gol flights traversing the continent to our South (and getting into North America, too, with their likely franchised entry into the competitive low cost Mexico air market next year).
So I picked up a few shares this morning -- Bought GOL today, December 9 at $48.02 (and yes, as I type this it has already fallen a bit further. I'll be keeping an eye on it to fill out my position).
This article posted by One Guy @ 12/09/2005 01:03:00 PM 0 comments
Add to: del.icio.us *Furl *Google *Spurl *reddit *StumbleUpon *Yahoo MyWeb *
Add to: del.icio.us *Furl *Google *Spurl *reddit *StumbleUpon *Yahoo MyWeb *
