São Paulo, July 9, 2020 - GOL Linhas Aéreas Inteligentes S.A. (NYSE: GOL and B3: GOLL4), (“GOL” or “Company”), Brazil’s biggest domestic airline, today provides its Investor Update for the month of June and the second quarter of 2020. All information is presented in Brazilian Reais (R$). The information below is preliminary and unaudited.
Since the last monthly update on June 9, 2020, GOL maintained its liquidity position at over 12 months of cash reserves, as a minimum. The Company increased its capacity to 120 flights a day in June to service a gradual recovery in demand for air travel. In the quarter, GOL’s consolidated gross sales were R$658 million and average load factor was 77%.
“As passenger demand resumes, our flexible low-cost business model enables us to quickly reopen routes where needed,” said Paulo Kakinoff, CEO. “We are confident that we are in a strong position as Brazil’s biggest domestic airline to meet this demand and, as a result, that we can increase our market share in the recovery.”
In July, Management will continue to assess levels of passenger demand generated in Brazil’s principal business and leisure markets, and the Company will maintain a sensible, measured and flexible approach to increasing capacity. Due to the support GOL expects to continue to receive from its stakeholders, it projects to maintain its cash flow equilibrium during the ramp-up period.
Kakinoff concluded: “We are committed to making flying as safe and comfortable as possible under the current circumstances. As air travel resumes, passengers will want to fly with the airlines that they trust the most on Service and Safety. We’ve always prided ourselves on those two factors at GOL during our almost twenty years of operations. We believe our track record on Customer service is going to count when Brazilians choose who to fly with in the coming months.”
Winning Trust as Travel Resumes
In 1Q20, the Company obtained the best rating on the Consumidor.gov.br portal, leading in the Solution Index, the Satisfaction Index and the Average Response Time. GOL maintained its leadership in these metrics during 2Q20.
In response to the pandemic, GOL reinforced all of its procedures to ensure the Health and Safety of its Customers and Employees, with increased attention to the cleaning of aircraft, including the use of a hospital-grade disinfectant for the service galleries and all areas of intense use in the cabin and the cockpit. GOL’s aircraft have HEPA air filters, which eliminates 99.7% of particles such as bacteria, viruses and other impurities on board, allowing the circulation of purer air.
Prior to the crisis, approximately 70% of GOL’s enplanements already took place without human interaction, as the Company made significant investments in technology in recent years. GOL’s flight app enables Customers to buy tickets, check in, check baggage and board, including through the use of facial recognition. In July, GOL launched new service via WhatsApp where Customers can check-in, obtain information and manage their flights. Since the crisis, 95% of the Company’s enplanements are now contactless.
The Company also equipped its Employees with gloves and masks, in addition to making alcohol-based gel available to the crew and Customers on the aircraft. The use of masks on board was mandatory as of May 10, which was met with great acceptance by its Customers.
Monthly Investor Update: Capacity, Cash Consumption and Liquidity
Maintaining a Conservative Cash Forecast
The Company continued to make the necessary cost reductions and shore up liquidity to fund the ramp-up of operations.
Adding to the announced initiatives to secure jobs for its 16,000 Employees, GOL structured an agreement involving 8,600 ground Employees (in addition to the 5,000 flight crew Employees that have already adhered to a similar agreement). These measures will allow the Company to match personnel costs to the ramp-up of its network. For 3Q20, GOL expects to maintain personnel costs at 40% to 50% of pre-pandemic levels.
The matching of capacity to demand has been a differential of the Company’s fleet management. With improving visibility into the recovery, GOL’s current capacity planning scenario assumes +300% in 3Q20 over 2Q20 and +120% in 4Q20 over 3Q20, and it has significant flexibility to respond to prevailing demand trends.
On these conservative assumptions, the Company estimates that it has over 12 months of cash-on-hand as a minimum, assuming that all financial expenses and debts are paid in full. On the basis of GOL’s current liquidity levels, as well as its flexible fleet management model, which enables it to offer the lowest cost structure among its peers, and its consolidated network in Brazil, the Company believes it has a strong advantage in a recovery relative to its direct competitors.
Increasing GOL’s Flight Capacity to Meet Demand
GOL ended the month of June with a total fleet of 130 B737s. With 27 aircraft operating in its network in June, flight operations were 13% or last year’s month, ramping up to 17% at the end of the month with the planned re-opening of five bases and an increase in flights between São Paulo and Rio de Janeiro. During the month, GOL ramped up to 120 daily flights, increasing frequencies in its hubs in Guarulhos, Galeão and Brasília.
With an increase to approximately 250 flights per day, July operations are expected to be around 25% of July 2019 schedule. GOL will be operating 36 aircraft in the network and plans to re-open 14 bases, including six regional destinations served by its partner Voepass.
In the first half of 2020, GOL reduced its fleet by 11 Boeing 737-800 leased aircraft, and plans to return an additional seven aircraft in 2H20. The Company can reduce its fleet by up to another 30 aircraft in 2021-2022, with the flexibility to return a higher number if demand is lower. Additionally, GOL reduced its 2020-2022 Boeing 737 MAX deliveries by 47 and capex to a total of R$280 million for July to December, with plans to fully finance all aircraft capex and engine overhauls remaining in 2020.
Among differences to its competitors, GOL does not have aircraft financed in the capital markets, EETCs or finance leases. Its fleet is 100% operating leases, and the Company is receiving support from its partners in the form of deferrals and discounts. GOL has been approached by certain lessors to modify lease arrangements to allow for variable power by the hour payments on some aircraft, and it will evaluate all potential alternatives to ensure and maintain its world-class fleet, important lessor relationships and leadership as a low-cost airline.
Cash Consumption
GOL had a net cash burn of R$2 million/day in June, which includes sales and receipts of approximately R$10 million/day. June recorded a 60% growth in the search for airline tickets. As a result of this greater interest, the Company recorded an increase in ticket sales, in all its channels, of 108% when compared to May. With the addition of flights during the month, the revenue from passengers transported increased 150% over May.
Monthly Investor Update: Capacity, Cash Consumption and Liquidity
For the remainder of 2020 (July-December), assuming revenues from the above-mentioned scenario, no ATL refunds, the results of negotiations with Employees, lessors and suppliers, and that financial expenses are paid in full, the Company estimates a net cash burn of R$4 million/day. Including the full payment of debts not related to aircraft (including the Term Loan), the Company estimates a net cash burn of R$10 million/day.
Preserving the Company’s Balance Sheet Liquidity
As of June 30, GOL had approximately R$3.3 billion in total liquidity, which implies over 12 months of cash on hand as a minimum, excluding refunds and restricted cash. In June, the Company used approximately US$25 million to settle fuel hedge operations. Including the financeable amounts of deposits and unencumbered assets, GOL’s potential liquidity sources total approximately R$7 billion.
GOL had approximately US$55 million invested in a portfolio of 17 million barrels of oil for the period from July 2020 to December 2022. Approximately 70% of the Company's portfolio is out of the money (US$55 average cap price) with premiums paid for in prior quarters. The remaining 30% of the portfolio is in zero cost collars with put options in Brent and Heating Oil, immunized at an average price of US$26, fully marked to market and fully invested in deposits with top-tier counterparties.
GOL’s performance during this pandemic is an affirmation of the work done on liquidity and the balance sheet for the last four years. The Company has continued to work on several initiatives with Employees, lessors, banks, suppliers, and the Brazilian Government.