Gol Linhas Aéreas Inteligentes S.A. (GOLL54) Earnings Call Transcript & Summary

Today, we are presenting at the JPMorgan Emerging Markets Credit Conference, and we are posting the presentation on the GOL IR website. Greetings to you all. It's Tuesday, September 22, 2020. Moving to Page #2. I show our disclaimer regarding forward-looking statements for this presentation. To help you follow along, I will call out the page numbers. Moving to Page #3. I'm Richard Lark, CFO of GOL. I have been working with airlines in Latin America since the mid-1990s. And I've been with GOL almost since its inception, joining the company in 2003, taking it public on the New York and Brazilian stock exchanges in 2004, and helping manage and monitor it through every cycle in the industry and the country for almost 2 decades. The presentation today will cover 3 topics: one, a brief overview of our company; two, how our team has managed through this year's crisis; and three, our strategy for the post-COVID-19 environment, including our fleet, financing and the strategic plans. Moving to Page #4. GOL is the #1 airline in the largest aviation market in Latin America. GOL's long-term success through all types of competitive environments and economic cycles derives from its proven LCC business model, the same successfully employed by Southwest, Ryanair and others, based on high aircraft utilization, optimization of fuel consumption through advanced analytics, data analytics and technology and flexibility with leasing and supply contracts. GOL offers the right product for all customers in its markets, characterized by low fares with high quality, a high Net Promoter Score and the highest share among business travelers. GOL has been successful in managing through the COVID-19 pandemic, and this month, we're approaching 50% of our 2019 capacity with plans to finish the year near 80%. Please move to the next page, Page #5. I speak from practice when I say that the GOL team outperforms in both innovative growth and crisis management. In 2001, GOL Airlines fundamentally changed the aviation industry in Brazil when it implemented the LCC business model in Brazil and South America. We have a long history of innovation in products, services and technologies. We have successfully managed through high-growth environments, as exemplified by the GOL effect from 2003 to 2008. We have thrived in various crises, such as the 2008/2009 global financial crisis and the 2015/'16 Brazil recession, and now this 2020 global pandemic. Our seasoned and purpose-built management team has the commitment of an experienced majority shareholder. Today, approaching its 20th year anniversary, GOL has captured over 40% of the Brazilian passenger market. One of the keys to GOL's market leadership is the GOL operating model based on high-density aircraft deployed on a high utilization nationwide network, as you can see here on the next page, Page #6. GOL's single-fleet type 737s have the most seats, the highest fuel efficiency, the highest utilization. Even among LCCs, GOL outperforms with industry-leading aircraft utilization against an extremely strong peer group and a simplified supply chain. GOL's network covers Brazil's huge population of over 200 million, with complete coverage of Brazilian demand covering every state and every major city in one of the biggest and highest growing air passenger transportation markets in the world. To wrap up this brief review, I'll highlight on the next page, Page 7, that since its founding, GOL has been focused on being a socially responsible company committed to sustainability. Not only is GOL one of the greenest airlines in the world, we continually invest in becoming more sustainable. We reinforce our accountability with various stakeholders through added transparency and credibility. We provide annual sustainability reports based on the global reporting initiative guidelines as highlighted on this page. We report relevant ESG information to investors in accordance with the Sustainability Accounting Standards Board standards for the airline industry. And GOL continue to look for ways to become more fuel-efficient and adopt efficient technologies. We reduce operating costs by utilizing a standardized fleet and reduce fuel consumption and GHG emissions. With that brief overview of GOL, I will now turn to how we've managed through this pandemic over the last 6 months. Moving to Page #8, beginning with the impact of COVID-19 on air travel in Brazil. With over 200 million citizens, Brazil is the sixth most populous country in the world. Since March, Brazil has experienced an average of around 800 reported deaths per day from the COVID-19 caused by the newly discovered coronavirus. This places Brazil at 595 deaths per million persons, behind Spain and the U.K., and 5% ahead of the 569 per million in the U.S. Brazil's 7-day moving average fatality rate peaked in July and began trending down during August as you can see on this chart here. Air travel volumes in Brazil began declining in March and dropped off precipitously in April. At the end of May, domestic volumes began to gradually increase. And as of last week, which was the sixth full moon here in Brazil of this pandemic, domestic travel volumes have returned to around 30% of pre-pandemic levels. International volumes have not yet experienced any significant recovery. Now while the surprise demand shock caused by COVID-19 was unexpected, as you can see here on Page 9, GOL was fairly prepared to weather this demand shock. GOL's competitive strengths and business strategies with our customers, our employees and our balance sheet over the 14 previous quarters had resulted in cash flow generation up consistently and deleveraging had driven credit ratings improvement. With this starting position, on March 9, we initiated the execution of an action plan to manage through this pandemic, the elements and results of which I will summarize for you over the next few pages. Page 10 summarizes the extensive measures we implemented at GOL to make air travel safer during this pandemic. Page 11 summarizes how we quickly and efficiently adjusted capacity to the effects of the COVID-19 pandemic. It's important to note that through our strong relationship with Boeing, pre-pandemic, we had revamped our entire MAX order book. In March, we effected a meaningful reduction in capacity. At the end of May, we began ramping the backup capacity. And we've retained a lot of flexibility to react as the demand scenario evolves. Page 12 quantifies the benefits of GOL's flexible capacity management. We finished 2019 with 137 737s in the fleet comprised of 130 NGs and 7 MAXs. Pre-pandemic, our 2020 year-end fleet plan was for 140 aircraft with 23 MAXs, and our 2021 year-end fleet plan was for 144 aircraft with 34 MAXs. We had built in the contractual flexibility to ramp down if required, and that facilitated our ability to effect the 20% organic capacity reduction via delivery deferrals and organic redeliveries. And we expect to finish 2020 with a total fleet of 124 aircraft. As our fleet adjustment need was smaller compared to other airlines, and as we have a stronger operating model in one of the biggest domestic markets in the world, the vast majority of our lessors recognize that GOL will be one of the winners after this pandemic, and therefore, have been supportive of our fleet plan adjustments. Our fleet at the end of year-end 2021 will be similar to our current fleet with a different mix of MAXs and NGs. We plan to have 15 MAXs flying next year. We are confident in the MAX and are maintaining our fleet renewal program. In addition to GOL's flexible capacity management, moving to the next page, Page 13, another key to GOL's performance in this pandemic has been our network. This page highlights recent network performance in Brazil. GOL's 2Q '20 load factor was above 78% and was 18 points higher than the #2 player. GOL is poised to absorb more premium passengers due to its high network overlap. You can see in this chart the overlap for all routes in Brazil and for multi-airport cities. Here on Page 14, I share our sales performance over the last 6 months. The combination of comprehensive health measures, states easing restrictions and other actions have allowed GOL's sales to grow at around 15% week-to-week from the end of May to the end of August to reach around 30% of pre-pandemic volumes at the end of August. In the second week of September, we are already selling BRL 16 million of tickets per day. GOL September 2020 ASKs should increase around 35% over August 2020. By year-end, we expect to return to around 80% of all domestic frequencies and markets. And as you can see here on Page 15, which highlights how the GOL network has been managed during the ramp-up over the last 6 months, you see our current scenario for the remainder of 2020. Demand in Brazil has been gradually improving every month since May. GOL is the most domestic of all Brazilian airlines, and hence, benefits the most from the revival of domestic travel. In terms of domestic ASKs, we've gone from 7% of 2019 in April to 40% in August and expect to be at 80% by the end of the year. Moving to the next page, I show you here how we have just given you an overview of how GOL prepared and performed operationally during this pandemic. The main operational results are summarized for you here on Page 16. Moving to the next page, Page 17, you have a summary of our liquidity initiatives that we executed over the last 6 months. GOL worked with all stakeholders, OEMs, suppliers, lessors, management and labor to shore up liquidity and rematch the company's cash outflows with the significantly reduced level of cash inflows due to the lost sales and revenues caused by this pandemic. And moving to the next page, Page 18, you can see the results of these liquidity initiatives. GOL's strong liquidity response to this pandemic was made possible by extensive preparations done on liquidity and balance sheet over the last 4 years. Moving to the next page, Page 19, you have some more details on our liquidity management over the last few quarters. And on the next page, Page 20, you can see our financial debt amortization schedule, where you see that GOL has no significant debt maturities until 2024. As I highlighted, GOL has done a lot of work strengthening its balance sheet coming into this crisis, so the resilience of our balance sheet during this pandemic is in part the result of the discipline and hard work over the last several years. Moving to Page 21. I will wrap up today's presentation with 2 slides that summarize where our management team is focused in the second half of this year and beyond. To leverage upon our strengths, the focus of the GOL team in the second semester of 2020 is on leading the recovery of the domestic market with capacity discipline and leadership in the corporate and leisure segments, strengthening our economic equilibrium by maintaining a CASM 25% lower than competitors and balancing our working capital investment, increasing customer satisfaction by being the easiest and safest to use in the market, expanding our sales by levering and leveraging our competitive advantages and increasing cargo and MRO revenues and increasing the competitivity of our team during and post-pandemic. And moving to Page #22, I highlight why strategically, GOL is prepared for success in any market environment. GOL's unique positioning, market relevance and preparation, complemented by decisions that will support and reinforce its positioning in the post-pandemic environment will ensure that GOL is positioned to win the future. With that, thank you for your interest in GOL Airlines.