Brazil's Gol Cutting 1,200 Jobs As Airline Seeks 'Orderly' Growth

Gol Linhas Aereas Inteligentes SA (GOLL4.BR, GOL), Brazil's second-biggest airline, is cutting 1,200 jobs, largely by natural attrition, as it seeks "to grow in a more orderly fashion", the company's Vice-President and Chief Financial Officer Leonardo Pereira said late Monday.

Gol, which describes itself as the largest low-fare, low-cost airline in Latin America, will announce by the end of June the precise number of job losses, Pereira said in an interview during the Rio Investors' Day in Rio de Janeiro.

"But very few people will actually be fired. We're not going to replace employees who leave or retire," Pereira said, noting the job-losses program started in March. "We're reviewing processes, decreasing capacity and operating with fewer planes. This doesn't mean that we're not going to grow: we're going to grow in a more orderly fashion."

Gol, which had 19,500 employees before the job-losses program began, including 1,200 at its subsidiary Webjet, is also seeking to tailor its seating capacity to better match market demand and boost margins, Pereira said.

Gol reported a loss of 41.4 million Brazilian reais ($20.29 million) in the first quarter, from a net profit of BRL69.4 million in the first quarter of 2011, as expenses, mainly aircraft fuel costs, increased at a faster pace than revenue. This followed losses of BRL751 million in 2011 and has led the company to step up a cost-cutting effort introduced in 2011.

"Oil prices are high, and it doesn't make sense to keep flying to places which give no return," Pereira said, noting the company discontinued flights from Brazil to Bogota, Colombia, in 2011. "We're optimizing our flight network, to adapt to a volatile market."

The aviation market in Brazil is meanwhile expected to grow 7% this year, twice the expected GDP growth rate, according to Gol's calculations. Nonetheless, aviation fuel taxes in Brazil are 30%-35% higher than in other countries and Gol is in talks with other airlines to attempt to find a solution for this problem.

"The airlines haven't yet benefited from the government's Brasil Maior package of tax incentives, but the government's showing us goodwill," the executive said. Gol has obtained discounts in aviation fuel purchases from state-controlled oil producer Petroleo Brasileiro SA (PBR, PETR4.BR) or Petrobras, because it's buying more fuel after it purchased Webjet, he said.

Gol's policy of fuel hedging continues amid exchange-rate volatility, Pereira said. "Forty percent of our consumption is hedged for the next 12 months. We've also hedged at this level for last 12 months, in line with international norms."

Gol will continue to enter partnerships "to help feed flights," after its announcement of a partnership with regional airline Passaredo Linhas Aereas, Pereira said. Gol also has link-ups with Air France-KLM (AF.FR, AFLYY), Iberia and Delta Air Lines Inc. (DAL), which purchased 3% of Gol last year for $100 million and expects to announce "two or three more international alliances," he said.

Gol isn't interested in making a bid for Portugal's TAP, he added.

The link-up with Delta is of strategic interest, as it gives Gol exclusive rights to the Brazil-U.S. route for the next 5 years, Pereira said. "Gol's focus is on South America and the Brazil-U.S. corridor. Over the next 10 years the Brazil-U.S. corridor will be one of those which grows most. Around 5,000 visas are being issued a day to Brazilians wishing to visit the U.S."

Gol said earlier this month that it would start operating flights to the U.S. via Venezuela. The stopover in Caracas allows Gol to operate flights to the U.S. while still making use of its Boeing 737 planes.

The company's policy continues to be to use standard-size planes such as the Boeing 737-700 and 737-800 with up to 180 seats to keep costs low, Pereira said. Webjet's fleet of 18 smaller 737-300 planes will all be returned to the leaser within 18-24 months, as these are less efficient nowadays than the larger planes, he said.

Gol meanwhile has no plans to increase Webjet's fares following its takeover of the smaller airline last year, even though Webjet essentially competes with Gol on ticket sales. "There's no possibility [of increasing Webjet fares]," Pereira said. "We have to have a range of fare prices."

The Smiles loyalty program, which two years ago was dormant, is being revived to give passengers greater benefits and will be managed separately from the rest of the company, he said.

-By Diana Kinch and Paulo Winterstein, Dow Jones Newswires; +55-21-2586-8086; diana.kinch@dowjones.com

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