GOL Linhas Aereas (GOL), Brazil’s low-cost airline, recently announced that it has agreed to a strategic partnership with Air France-KLM. The partnership is expected to greatly expand GOL’s operations between Brazil and Europe. The deal is now pending approval.
According to regulatory filings, the French airline will pay US$52 million for a 1.5% stake in Brazil’s second-largest air carrier by market share. Another US$48 million investment will be applied to commercial agreements and bonuses based on cost savings from new efficiencies.
Industry analysts believe that the cash injection will help GOL cover rising foreign debt costs as the Brazilian real continues to weaken. According to the company’s website, nearly 76% of its R$5.5 billion debt is in foreign currency.
The cash will also provide the airline with additional capital to increase the number of flights to meet the expected demand from the World Cup soccer tournament later this year. It’s projected that Brazil will host 600,000 international visitors for the event. Many of those fans will be traveling to Brazil from Europe. With its increased capacity, GOL will be poised to profit from the increased traffic.
Additionally, GOL will gain a stronger foothold in Europe, one of the most popular destinations for Brazilians. The deal helps both companies boost their service to 318 destinations in 115 countries.
GOL has a similar deal with American-based Delta Airlines. Under their code-sharing agreement, they are optimizing connection routes between the United States and Brazil. Delta, which owns a 6% stake in GOL, has access to 23 destinations in Brazil. GOL, on the other hand, has access to five destinations in the United States.
In spite of the weakening real, if all goes as planned, GOL stands to realize significant growth from World Cup traffic this year as well as projected traffic from the 2016 Summer Olympics. Combine this deal with efforts at improving airports that are underway in Brazil and it may be much easier for sports fans to secure transportation to and from Brazil during what will be hectic travel periods.
