Gol’s passenger revenue increases on higher yields

According to the International Air Transport Association (or IATA), Brazil is the third largest domestic aviation market. With double-digit traffic growth, Brazil was one of the fastest-growing domestic markets in 2010 and 2011. However, growth slowed in 2012 and 2013 as Brazilian carriers started cutting capacity expansion plans to match the decline in demand on slowing economic growth. However, load factors have improved since then.

While Avianca and Azul predominantly serve the domestic market, LATAM and Gol have been increasingly expanding to international markets and cutting domestic capacity.

Gol’s passenger revenue has grown at a four-year CAGR of ~11% from 5,307 million real in FY09 to 8,122 million real in FY13. In 2013, revenue growth increased to 13% after slowing down from 18.3% in 2010 to 6.9% in 2011 and 6.7% in 2012. In FY13, all major airlines in the US, including Delta (DAL), American (AAL), Southwest (LUV), United (UAL), and Alaska (ALK), reported strong growth in passenger revenue.

The strong performance of US airlines is supported by strong air travel demand. Shares of US airline stocks are held by ETFs such as the iShares Transportation Average ETF (IYT) and the SPDR S&P Transportation ETF (XTN).

The growth in Gol’s passenger revenue in FY13 was driven by ~19% higher yield, although traffic and capacity declined by 4.7% and 4.3%, respectively. It resulted in a decline in load factor from 70.2% in FY12 to 69.9% in FY13, and higher yield led to increased unit revenues in FY13.

Gol’s passenger unit revenue grew at a four-year CAGR of 5.8% to 16.4 centavos from 13.1 centavos. This could be a result of Gol’s expansion in the business travel market. The business travel segment comprised almost 60% of the domestic air travel market in Brazil, according to the company.