Brazil's Gol Linhas Aereas Inteligentes is a tropical version of JetBlue Airways and Ryanair, the low-cost, nofrills carriers in the United States and Europe. Established in 2001, Gol adopted the low-cost model pioneered by Southwest Airlines and refined by the likes of JetBlue and Ryanair. Gol sells discount tickets, mainly over the Internet. It targets price-sensitive business travelers, who account for 70 percent of all traffic in Brazil's rapidly growing market for air travel (demand for air travel in Brazil is growing at roughly twice the rate of growth in the country's gross domestic product). Gol is also going after Brazil's large bus market; in 2001 some 130 million people in Brazil traveled by interstate bus companies. Gol has standardized its fleet on a single aircraft model, Boeing's 737 series. There are no airport clubs or frequent flyer programs, cabins are a single class, and light snacks and beverages replace meals.
The airline also offers Internet check-in and delivers a reliable product, with 95 percent of flights arriving on time. Gal's service has elicited a remarkable response from customers, with an independent market research survey finding that more than 90 percent of customers would continue to use the airline and recommend it to others. From a standing start in January 2001, this business model enabled Gol to capture a 22 percent share of the Brazilian market by mid-2004. By then, Gol had a fleet of 25 aircraft and was already ranked as one of the fastest-growing and most profitable airlines in the world, but its aspirations are much bigger. Gol wants to be the low-cost carrier in South America.
To get to that point, it planned to expand its fleet to some 69 aircraft by 2010. To help finance this expansion, Gol decided to tap into the global capital market. In mid-2004 the privately held company offered nonvoting preferred stock to investors on the Sao Paulo Bovespa and the New York Stock Exchange. The simultaneous offering was oversubscribed, with the underwriters lifting the offering price twice, and raised some $322 million. In explaining the decision to offer stock through the New York Stock Exchange, Gal's chief financial officer noted, "We wanted to get a solid group of long-term investors that understood the business. We've got that.
We also wanted to get a group of research analysts that understood this sector, and we now have seven analysts covering the stock. Southwest, JetBlue, Ryanair, and Westjet are considered the tier one in terms of operating profitability and successes. We were able to put Gol right up in that group. Doing both the NYSE and Bovespa was part of our strategy to sell shares to investors that have familiarity with low-cost carriers. The strategy works. If you look at the list of major investors in the company, the majority of them have high positions in trade of the equities of JetBlue, Southwest, and Ryanair.
For them, it was a very easy analysis to understand Gal's business model and how it makes money." Aided by the financing, Gol was able to expand rapidly. By early 2007 it already had 65 aircraft and was operating 600 daily flights to 55 destinations, including seven international routes to five South American countries. Gol had a market share of 36 percent for routes within Brazil and 13 percent on international routes originating in Brazil. Its planes were 7 4 percent full on average, the best in Brazil, and it was the most punctual airline in Brazil. By early 2011, Gol surpassed its local rival, TAM, to become the largest airline in Brazil, accounting for 40 percent of the domestic marker
Case Discussion Questions
1. What were the benefits to Gol of a listing on the New York Stock Exchange in addition to the Sao Paulo Bovespa?
2. Why do you think the Gol stock offering was oversubscribed?
3. Do you think Gol would have raised as much money if it had just listed on the new Sao Paulo exchange?
4. How might the joint listing of the New York and Sao Paulo stock exchanges affect Gal's ability to raise additional capital in the future?