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Why Shares of GOL Linhas Aereas Were Soaring on Friday

By Lou Whiteman - Updated Jul 5, 2019 at 10:55AM

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The company is benefiting from a rival's troubles.

What happened

Shares of GOL Linhas Aereas Inteligentes (GOL -0.16%) were trading up more than 10% on Friday after Brazil's largest airline reported strong June travel demand. The airline's results provide fresh evidence of its strength in its home market.

So what

GOL Linhas on Friday reported that load factor -- the percentage of available seats that are sold -- was up 5.4% year over year to 83% in June, even as capacity grew. Total departures were up 4.6%. The international load factor was particularly strong, up 13.4% year over year to 75.5%, even with the airline increasing departures by 76%.

An airplane coming in for a landing at night.

Image source: Getty Images.

The strong results follow the suspension of rival Avianca Holdings' Brazil operations on May 24. Goldman Sachs analyst Bruno Amorim earlier this week upgraded GOL to a buy and raised his price target to $22.40 from $12.15 based on the suspension, saying GOL figures to be the primary beneficiary of Avianca's troubles.

Amorim said the suspension should provide a significant boost to GOL, and the stock could climb by 33% in the next 12 months.

Now what

The softening competitive dynamic in its domestic market comes at an ideal time for GOL, which came into 2019 hoping to reduce its debt while also expanding its operations. Part of that plan relied on replacing older jets with new Boeing 737-MAX aircraft, but the recent troubles with that model have complicated GOL's plans.

The company is optimistic, and in late February raised its estimates for 2019 earnings by $0.10 per share to a range of $1.30 to $1.50, and 2020 earnings to $1.70 to $2 per share. With Avianca sidelined, GOL has a little extra runway to land on those numbers.

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