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Introduction to Gol’s passenger and ancillary revenue sources

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Revenue growth

Gol provides passenger as well as freight transportation services. Revenue from passenger transport comprises the major portion of Gol’s revenue, accounting for 91% of its total revenue. The rest of the revenue comes from transporting cargo and other ancillary revenue. Gol’s revenue increased at a four-year compounded annual growth rate (or CAGR) of 10.4% from 6,025 million real in 2009 to 8,956 million real in 2013. Plus, the composition of passenger revenue increased from 88% to 91% during the period.

Gol’s unit revenue has increased at a four-year CAGR of 4.8%. In 2013, while Gol’s passenger revenue increased at a rate of ~13%, revenue from cargo and other sources decreased by ~12%. We will discuss more on the drivers of passenger revenue in the next article.

Part2_Revenue

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Ancillary revenue

Gol’s ancillary revenue provides additional revenue with low incremental costs. Ancillary revenue sources include revenue from air cargo services under the Gollog brand, ticket change fees, excess baggage fees, and similar services. Gol is increasingly focused on express delivery services, which accounted for 25% of its cargo revenue. In addition to this, Gol introduced the sale of beverages and food on board (buy on board service) in 2009 and offers this service on 70% of its flights as of FY13.

As part of the Gol+ product, it introduced the sale of Gol+Conforto seats for an additional fee. These seats recline, have additional legroom, and are offered free of charge for Smiles Diamond and Delta Airlines Elite customers.

Airlines all over the world, including major US airlines such as Delta (DAL), United (UAL), American (AAL), Southwest (LUV), and JetBlue (JBLU), are increasing revenue from high-margin ancillary business.

These US airlines are part of ETFs such as the iShares Transportation Average ETF (IYT), the PowerShares DWA Consumer Cyclical Momentum Portfolio (PEZ), the PowerShares Dynamic Market Portfolio (PWC), and the SPDR S&P Transportation ETF (XTN).

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