As filed with the Securities and Exchange Commission on March 21, 2023
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM
_______________
| [ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
| [ |
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED |
OR
| [ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
| [ | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
GOL Linhas Aéreas Inteligentes S.A.
(Exact name of registrant as specified in its charter)
(Translation of registrant’s name into English)
_________________
The Federative Republic of
(Jurisdiction of incorporation or organization)
+55 11 5098-
Fax:
E-mail:
Federative Republic of
(Address of principal executive offices)
(Name, telephone, e-mail and/or facsimile number and address of company contact person)
___________________________________________
Securities registered or to be registered pursuant to Section 12(b) of the Act.
| Title of each class: | Trading symbol: | Name of each exchange on which registered: |
| Preferred Shares, without par value American Depositary Shares (as evidenced by American Depositary Receipts), each representing two Preferred Shares |
* |
New York Stock Exchange |
* Not for trading purposes, but only in connection with the trading on the New York Stock Exchange of American Depositary Shares representing those preferred shares.
___________________________________________
Securities registered or to be registered pursuant to
Section 12(g) of the Act:
None
___________________________________________
Securities for which there is a reporting obligation pursuant
to Section 15(d) of the Act:
None
___________________________________________
The number of outstanding shares of each class of stock of GOL Linhas Aéreas Inteligentes S.A. as of December 31, 2022:
Common Shares
Preferred Shares
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [_]
If this report is an annual or transition report, indicate
by check mark if the registrant is not required to file pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes [_]
Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of
this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer [_] | Non-accelerated filer [_] |
Emerging
growth company [
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. [_]
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. [X]
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
| U.S. GAAP [_] | Other [_] |
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
Item 17 [_] Item 18 [_]
If this is an annual report, indicate by check mark whether
the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [_]
Table of Contents
Presentation of Financial and Other Data
The consolidated financial statements included in this annual report have been prepared in accordance with International Financial Reporting Standards, or IFRS, issued by the International Accounting Standards Board, or IASB, in reais.
We have translated some of the real amounts contained in this annual report into U.S. dollars. The rate used to translate such amounts in respect of the year ended December 31, 2022 was R$5.2177 to US$1.00, which was the U.S. dollar selling rate as of December 31, 2022, as reported by the Brazilian Central Bank (Banco Central do Brasil), or the Central Bank. The U.S. dollar equivalent information presented in this annual report is provided solely for the convenience of investors and should not be construed as implying that the real amounts represent, or could have been or could be converted into, U.S. dollars at the above rate.
The consolidated financial statements included in this annual report have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets and satisfaction of liabilities and commitments in the normal course of business. As such, the consolidated financial statements included in this annual report do not include any adjustments that might result from an inability to continue as a going concern. If we cannot continue as a going concern, adjustments to the carrying values and classification of our assets and liabilities and the reported amounts of income and expenses could be required and could be material. For more information, see “Item 5. Operating and Financial Review and Prospects—D. Trend Information.”
In this annual report, we use the terms “the registrant” and “GLAI” to refer to GOL Linhas Aéreas Inteligentes S.A., and “GOL”, “Company”, “we”, “us” and “our” to refer to the registrant and its consolidated subsidiaries together, except where the context requires otherwise. The term “GLA” refers to GOL Linhas Aéreas S.A., a wholly owned subsidiary of the registrant (formerly VRG Linhas Aéreas S.A., or VRG). References to “preferred shares” and “ADSs” refer to non-voting preferred shares of the registrant and American depositary shares representing those preferred shares, respectively, except where the context requires otherwise.
The phrase “Brazilian government” refers to the federal government of the Federative Republic of Brazil. The term “Brazil” refers to the Federative Republic of Brazil. The terms “U.S. dollar” and “U.S. dollars” and the symbol “US$” refer to the legal currency of the United States. The terms “real” and “reais” and the symbol “R$” refer to the legal currency of Brazil. We make statements in this annual report about our competitive position and market share in, and the market size of, the Brazilian and international airline industries. We have made these statements on the basis of statistics and other information from third party sources, governmental agencies or industry or general publications that we believe are reliable. Although we have no reason to believe any of this information or these reports are inaccurate in any material respect, we have not independently verified the competitive position, market share and market size or market growth data provided by third parties or by industry or general publications. All industry and market data contained in this annual report are from the latest publicly available information.
Certain figures included in this annual report have been rounded. Accordingly, figures shown as totals in certain tables may not be an arithmetic sum of the figures that precede them.
This annual report is incorporated by reference into our registration statement on Form F-3, filed with the SEC on August 7, 2020 and amended on March 21, 2023.
This annual report contains terms relating to operating performance in the airline industry that are defined as follows:
“Aircraft utilization” represents the average number of block-hours operated per day per aircraft for the total aircraft fleet.
“ATK” refers to available ton kilometers and is a measure of total capacity, considering passenger and cargo.
“Available seat kilometers” or “ASK” represents the aircraft seating capacity multiplied by the number of kilometers flown.
“Average stage length” represents the average number of kilometers flown per flight.
“Block-hours” refers to the elapsed time between an aircraft’s leaving an airport gate and arriving at an airport gate.
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“Load factor” represents the percentage of aircraft seating capacity that is actually utilized (calculated by dividing revenue passenger kilometers by available seat kilometers).
“Low-cost carrier” refers to airlines with a business model focused on a single fleet type, low-cost distribution channels and a highly efficient flight network.
“MRO” refers to maintenance, repair and operations.
“Net revenue per available seat kilometer” or “RASK” represents net revenue divided by available seat kilometers.
“Operating costs and expenses per available seat kilometer” or “CASK” represents operating costs and expenses divided by available seat kilometers, which is the generally accepted industry metric to measure operational cost efficiency.
“Operating costs and expenses excluding fuel expense per available seat kilometer” or “CASK ex-fuel” represents operating costs and expenses less fuel expense, divided by available seat kilometers.
“Passenger revenue per available seat kilometer” or “PRASK” represents passenger revenue divided by available seat kilometers.
“Revenue passenger kilometers” or “RPK” represents the number of kilometers flown by revenue passengers.
“Revenue passengers” represents the total number of paying passengers flown on all flight segments.
“Yield per passenger kilometer” or “yield” represents the average amount one passenger pays to fly one kilometer.
Cautionary Statements about Forward-Looking Statements
This annual report includes forward-looking statements, principally under the captions “Risk Factors,” “Operating and Financial Review and Prospects” and “Business Overview.” We have based these forward-looking statements largely on our current beliefs, expectations and projections about future events and financial trends affecting us. Many important factors, in addition to those discussed elsewhere in this annual report, could cause our actual results to differ substantially from those anticipated in our forward-looking statements, including, among others:
| · | general economic, political and business conditions in Brazil, South America and the Caribbean; |
| · | the effects of global financial markets and economic crises; |
| · | management’s expectations and estimates concerning our financial performance and financing plans and programs; |
| · | fluctuations in crude oil prices and its effect on fuel costs, especially in light of the ongoing conflict between Russia and Ukraine; |
| · | developments relating to, the economic, financial, political and health effects of, and our ability to timely and efficiently implement any measure necessary in response to, or to mitigate the impacts of any pandemic and resulting government measures; |
| · | our level of fixed obligations; |
| · | our capital expenditure plans, including in response to climate change risks; |
| · | our ability to obtain financing on acceptable terms; |
| · | our ability to service our indebtedness; |
| · | inflation and fluctuations in the exchange rate of the real; |
| · | changes to existing and future governmental regulations, including air traffic capacity controls and regulations related to climate change matters; |
| · | increases in maintenance costs, insurance premiums and other operating expenses, including fuel costs, that we may not be able to adjust in our ticket prices; |
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| · | changes in market prices, customer demand and preferences, including as a result of climate change, and competitive conditions; |
| · | cyclical and seasonal fluctuations in our operating results, including as a result of climate change; |
| · | defects or mechanical problems with our aircraft; |
| · | our ability to successfully implement our strategy; |
| · | developments in the Brazilian civil aviation infrastructure, including air traffic control, airspace and airport infrastructure; |
| · | terrorism incidents, cyber-security threats, disease outbreaks and other health crises or related occurrences affecting the airline industry; and |
| · | the risk factors discussed under the caption “Item 3. Key Information—D. Risk Factors” in this annual report. |
The words “believe,” “may,” “will,” “aim,” “estimate,” “continue,” “anticipate,” “intend,” “expect” and similar words are intended to identify forward-looking statements. Forward-looking statements include information concerning our possible or assumed results of operations, business strategies, financing plans, competitive position, industry environment, potential growth opportunities and the effects of regulation and of competition. Forward-looking statements are valid only as of the date they were made, and we undertake no obligation to update publicly or to revise any forward-looking statements after we distribute this annual report because of new information, events or other factors. In light of the risks and uncertainties described above, the forward-looking events and circumstances discussed in this annual report might not occur and are not guarantees of future performance.
PART I
ITEM 1. Identity of Directors, Senior Management and Advisers
Not applicable.
ITEM 2. Offer Statistics and Expected Timetable
Not applicable.
ITEM 3. Key Information
| A. | [Reserved] |
| B. | Capitalization and Indebtedness |
Not applicable.
| C. | Reasons for the Offer and Use of Proceeds |
Not applicable.
| D. | Risk Factors |
Investment in the ADSs involves a high degree of risk. You should carefully consider the risks described below, as well as the other information in this annual report, before making an investment decision regarding the ADSs. Our business, financial condition and results of operations could be materially and adversely affected by any of these risks. The trading price of the ADSs could decline due to any of these risks or other factors, and you may lose all or part of your investment. For purposes of this section, when we state that a risk, uncertainty or event may, could, would or will have an “adverse effect” on us or “adversely affect” us, we mean that the risk, uncertainty or event could have an adverse effect on our business, financial condition, results of operations, cash flow, prospects, reputation and/or the trading price of the ADSs, except as otherwise indicated.
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Risks Relating to Brazil
The Brazilian government has exercised, and continues to exercise, significant influence over the Brazilian economy, and such involvement, along with general political and economic conditions, could adversely affect us.
The Brazilian government has frequently intervened in the Brazilian economy and has occasionally made drastic changes in policy and regulations. The Brazilian government’s actions to control inflation and in respect of other policies and regulations have involved, among other measures, increases in interest rates, changes in tax and social security policies, price controls, currency exchange and remittance controls, devaluations, capital controls and limits on imports. We may be adversely affected by changes in policy or regulations at the federal, state or municipal level involving factors such as:
| · | interest rates; |
| · | currency fluctuations; |
| · | monetary policies; |
| · | inflation; |
| · | liquidity of capital and lending markets; |
| · | tax and social security policies; |
| · | labor regulations; |
| · | energy and water shortages and rationing; and |
| · | other political, social and economic developments in or affecting Brazil. |
Uncertainty over whether the Brazilian government will implement changes in policy or regulation affecting these or other factors may contribute to economic uncertainty in Brazil and to heightened volatility in the Brazilian securities markets and securities issued abroad by Brazilian companies.
According to the Brazilian Institute of Geography and Statistics (Instituto Brasileiro de Geografia e Estatística), or the IBGE, Brazil’s gross domestic product, or GDP, sharply contracted by 4.1% in 2020 due to global effects of developments relating to the COVID-19 pandemic and grew by 4.6% in 2021 and 2.9% in 2022. Developments in the Brazilian economy may affect Brazil’s growth rates and, consequently, the use of our products and services and we have been, and will continue to be, affected by changes in the Brazilian GDP.
Political instability may adversely affect us.
Brazilian markets experienced heightened volatility in the last decade due to uncertainties deriving from the ongoing Lava Jato investigation, which is being conducted by the Federal Prosecutor’s Office, and its impact on the Brazilian economy and political environment. Numerous members of the Brazilian government and of the legislative branch, as well as senior officers of large state owned and private companies have been convicted of political corruption of officials accepting bribes by means of kickbacks on contracts granted by the government to several infrastructure, oil and gas and construction companies.
The ultimate outcome of these investigations is uncertain, but they had an adverse impact on the image and reputation of the implicated companies, and on the general market perception of the Brazilian economy. The development of those unethical conduct cases has and may continue to adversely affect us.
In October 2022, Brazil held elections for President, senators, federal deputies and state deputies. Former President Luiz Inácio Lula da Silva won the election. Uncertainty regarding political developments and the policies the Brazilian federal government may adopt or alter may have material adverse effects on the macroeconomic environment in Brazil, as well as on businesses operating in Brazil, including ours.
Risks relating to the global economy may affect the perception of risk in emerging markets, which may adversely affect the Brazilian economy, including by means of oscillations in the capital markets and, consequently, us.
The market value of securities issued by Brazilian companies is influenced, to varying degrees, by the economic and market conditions of other countries, including the United States, European Union member countries and emerging economies. The reaction of investors to events in these countries may adversely affect the market value of the securities of Brazilian companies. Crises in the United States, the European Union or emerging markets may reduce investor interest in the securities of Brazilian companies, including securities issued by us.
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In addition, the Brazilian economy is affected by international macroeconomic and market conditions, especially in the United States. Stock prices on the B3 S.A. – Brasil, Bolsa, Balcão, or the B3, for example, are highly affected by fluctuations in U.S. interest rates and by the behavior of the major U.S. stock exchanges. Any increase in interest rates in other countries, especially the United States, could reduce overall liquidity and investor interest in Brazilian capital markets.
Recent global developments relating to the ongoing conflict between Russia and Ukraine and, in early 2023, the crisis in global financial systems have generated uncertainty in global capital markets, and U.S. and European stock markets have seen increased price volatility. We cannot predict how these developments will evolve and whether or to what extent they may affect Brazilian capital markets and, consequently, us.
We cannot assure that Brazilian capital markets will be open to Brazilian companies and that financing costs will be favorable to Brazilian companies. Economic crises in Brazil or other emerging markets may reduce investor interest in securities of Brazilian companies, including securities issued by us. This may affect the liquidity and market price of the ADSs and our access to the Brazilian capital markets and financing on acceptable terms, which may adversely affect us.
Government efforts to combat inflation may hinder the growth of the Brazilian economy and materially and adversely affect us.
Historically, Brazil has experienced high inflation rates, which, together with actions taken by the Central Bank to curb inflation, have had significant adverse effects on the Brazilian economy. According to the IBGE, the annual rate of inflation in Brazil, as measured by the National Broad Consumer Price Index (Índice Nacional de Preços ao Consumidor Amplo), or IPCA, was 4.5% in 2020, 10.1% in 2021 and 5.8% in 2022, respectively.
The base interest rate for the Brazilian banking system is the Central Bank’s Special System for Settlement and Custody (Sistema Especial de Liquidação e Custódia) rate, or SELIC rate. The SELIC rate was repeatedly lowered from the October 2016 rate of 14.25% to 2.00% in August 2020 and has since steadily increased. As of December 31, 2020, 2021 and 2022, the SELIC rate was 2.0%, 9.25% and 13.75%, respectively. As of the date of this annual report, the SELIC rate remains 13.75%.
Inflation and the Brazilian government’s measures to curb it, principally the Central Bank’s monetary policy, have had and may again have significant effects on the Brazilian economy and us, while tight monetary policies with high interest rates may restrict Brazil’s growth and the availability of credit, more lenient government and Central Bank policies and interest rate decreases may trigger increases in inflation, and, consequently, growth volatility and the need for sudden and significant interest rate increases, which could adversely affect us. In addition, we may not be able to adjust the fares we charge our customers to offset the effects of inflation on our cost structure.
Downgrades in Brazil’s credit rating could adversely affect our credit rating, the cost of our indebtedness and the trading price of securities issued by us.
Credit ratings affect investors’ perceptions of risk and, as a result, the yields required on indebtedness issuances in the financial markets. Rating agencies regularly evaluate Brazil and its sovereign ratings, taking into account a number of factors, including macroeconomic trends, fiscal and budgetary conditions, indebtedness and the prospect of change in these factors. Downgrades in Brazil’s credit rating can lead to downgrades in our credit rating and increase the cost of our indebtedness as investors may require a higher rate of return to compensate a perception of increased risk.
In January 2018, Standard & Poor’s downgraded Brazil’s credit rating to BB- with a stable outlook, which it changed to positive in December 2019 and back to stable in April 2020. In June 2021, and in June 2022, Standard & Poor’s reaffirmed its rating. In February 2018, Fitch downgraded Brazil’s credit rating to BB- with a stable outlook, which it affirmed in May 2019. In May 2020, Fitch adjusted its outlook to negative, reaffirmed in May 2021 and July 2022. Since April 2018, Moody’s has maintained Brazil’s credit rating at Ba2 with a stable outlook.
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Exchange rate instability may materially and adversely affect us.
The Brazilian currency has, during the last decades, experienced frequent and substantial variations in relation to the U.S. dollar and other foreign currencies. In 2020 and 2021, the real appreciated against the U.S. dollar and the U.S. dollar selling rate was R$5.197 per US$1.00 as of December 31, 2020 and R$5.581 per US$1.00 as of December 31, 2021, as reported by the Central Bank. In 2022, the real gained value against the U.S. dollar and, as of December 31, 2022, the U.S. dollar selling rate was R$5.218 per US$1.00. There can be no assurance that the real will not depreciate further against the U.S. dollar.
In 2022, 88.2% of our passenger revenue and other revenue were denominated in reais while 47.8% of our total operating costs and expenses were either denominated in or linked to U.S. dollars, such as fuel, aircraft and engine maintenance services and aircraft insurance. The market and resale value of the majority of our operating assets, our aircraft, is denominated in U.S. dollars. As of December 31, 2022, R$21,737.1 million, or 93.7%, of our indebtedness was denominated in U.S. dollars and we had a total of R$7,170.7 million in present value non-cancelable U.S. dollar denominated future lease payments.
Largely because of the ongoing conflict between Russia and Ukraine, Brent oil prices sharply increased from about US$75 per barrel at the end of 2021 to US$128 per barrel in March 2022. Prices remained high throughout 2022 and, as of December 31, 2022, Brent oil was priced at US$85.91 per barrel. It is possible that our U.S. dollar denominated operating expenses will further increase.
We are also required to maintain U.S. dollar denominated deposits and maintenance reserve deposits under the terms of some of our aircraft operating leases. We may incur substantial additional amounts of U.S. dollar denominated leases or financial obligations and U.S. dollar denominated indebtedness and we will be subject to fuel cost increases linked to the U.S. dollar. While in the past we have generally adjusted our fares in response to, and to alleviate the effect of, depreciation of the real against the U.S. dollar and increases in the price of jet fuel (which is priced in U.S. dollars) and have entered into hedging arrangements to protect us against the short-term effects of such developments, there can be no assurance that we will be able to continue to do so. However, unlike certain other expenses, we may not be able to defer significant amounts of our fuel costs and we will likely not be able to adjust fuel costs in our ticket prices.
Depreciation of the real against the U.S. dollar creates inflationary pressures in Brazil and causes increases in interest rates, which adversely affects the growth of the Brazilian economy as a whole, curtails access to foreign financial markets and may prompt government intervention, including recessionary governmental policies. Depreciation of the real against the U.S. dollar has also, as in the context of an economic slowdown, led to decreased consumer spending, deflationary pressures and reduced growth of the economy as a whole. Depreciation of the real also reduces the U.S. dollar value of distributions and dividends on the ADSs and the U.S. dollar equivalent of the market price of our preferred shares and, as a result, the ADSs. On the other hand, appreciation of the real against the U.S. dollar and other foreign currencies could lead to a deterioration of the Brazilian foreign exchange current accounts, as well as dampen export-driven growth. Depending on the circumstances, either depreciation or appreciation of the real could materially and adversely affect us.
Risks Relating to Us and the Brazilian Airline Industry
The airline industry is particularly sensitive to changes in macroeconomic conditions, and adverse macroeconomic conditions have and may further materially and adversely affect the airline industry and us.
The airline industry in general, and the industry in Brazil in particular, are sensitive to changes in macroeconomic conditions. Unfavorable macroeconomic conditions in Brazil, a constrained credit market and increased business operating costs reduce spending on both leisure and business travel, as well as cargo transportation. Slowdowns in the Brazilian economy, such as the one faced in 2020 as a result of the COVID-19 global pandemic, adversely affect industries with significant spending in travel, including government, oil and gas, mining and construction, which affect the quality of demand, reducing the number of higher yield tickets we can sell. Unfavorable macroeconomic conditions, which, as of the date of this annual report, persist, may not be counterbalanced by our ability to raise fares to counteract increased fuel, labor and other costs. We cannot predict macroeconomic developments or their impact on us, including exchange rate volatility and increased fuel prices, especially in the context of the ongoing conflict between Russia and Ukraine and as a result of political developments and the policies the new Brazilian federal government may adopt or alter, but we expect to face inflationary pressures and consistently high fuel prices in 2023. Especially because we may not be able to delay paying for significant amounts of our fuel costs and we will likely not be able to adjust fuel costs in our ticket prices, these price increases may materially and adversely affect us.
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Unfavorable macroeconomic conditions, a significant decline in demand for air travel or continued instability of the credit and capital markets, especially in light of the crisis in global financial systems in early 2023, could also result in pressure on our indebtedness costs, operating results and financial condition and would affect our growth and investment plans. These factors could also adversely affect our ability to obtain financing on acceptable terms and liquidity generally.
Substantial fluctuations in fuel costs would harm us.
International and local fuel prices are subject to high volatility depending on multiple factors, including geopolitical issues and supply and demand. The price of West Texas Intermediate crude oil, a benchmark widely used for crude oil prices that is measured in barrels and quoted in U.S. dollars, affects our fuel costs and constitutes a significant portion of our total operating costs and expenses. The average price per barrel of West Texas Intermediate crude oil was US$39.13, US$67.34 and US$94.33, in 2020, 2021 and 2022, respectively, according to New York Mercantile Exchange – NYMEX data. The average price for 2020 reflects the low prices in the first half of 2020. By year-end 2022, the price per barrel of West Texas Intermediate crude oil was US$80.26. Fuel costs represented 28%, 23% and 43% of our total operating costs and expenses in 2020, 2021 and 2022, respectively.
Because Russia is one of the world’s largest oil exporters, we expect global developments relating to the ongoing conflict between Russia and Ukraine, and resulting export restrictions, to result in a consistently decreased global supply and, consequently, high fuel prices.
Substantially all of our fuel is supplied by one source, Petrobras Distribuidora S.A., or Petrobras Distribuidora, and we depend on them to supply fuel at the times and in the quantities that we require. As such, we are exposed to significant supplier risk, which may materially and adversely affect us. See “Item 4. Information on the Company—B. Business Overview—Airline Business—Fuel.”
We may not be able to maintain adequate liquidity and our cash flows from operations and financings may not be sufficient to meet our current obligations.
Our liquidity, cash flows from operations and financings have been and may be adversely affected by exchange rates, fuel prices and the impact of adverse economic conditions in Brazil on the demand for air travel. As of December 31, 2021, our total indebtedness was R$22,663.0 million, as compared to R$23,191.8 million as of December 31, 2022, which increase was mainly due to lease agreements signed in 2022. The average maturity of our loans and financing, excluding our perpetual notes, was 3.4 years as of December 31, 2021 and 2.5 years as of December 31, 2022. We have no significant indebtedness maturing until 2024, but, as of December 31, 2022, we had negative working capital of R$10,867.7 million.
In the past three years, we have taken numerous measures to protect our operations and liquidity, significantly reducing fixed and variable costs, deferring certain lease obligations and rolling over and extending certain debt. We cannot guarantee that our cash preservation and cost reduction initiatives will be sufficient to preserve our liquidity or that creditors will continue to cooperate with us. In addition, our liquidity has adversely affected our operations in the context of recovering demand, as certain of our aircraft remain non-operational due to recent liquidity limitations.
Certain of our indebtedness agreements contain covenants that require the maintenance of specified financial ratios. Our ability to meet these financial ratios and other restrictive covenants may be affected by events beyond our control and we cannot assure that we will meet those ratios. Failure to comply with any of these covenants or payment obligations under our finance and lease obligations could result in an event of default under these agreements and others, as a result of cross default provisions. If we were unable to comply with our indebtedness covenants, we need to seek waivers from our creditors. In December 2022, holders of our outstanding debentures waived our non-compliance with certain financial ratio covenants, which we will have to calculate again as of June 30, 2023. We cannot guarantee that we will be successful in complying with our covenants or in obtaining or renewing any waivers.
Since the beginning of the global pandemic, we have repeatedly deferred and not been paying in full our lease obligations and many other suppliers, which have generally been cooperating with us under deferrals, amendments to our outstanding agreements and alternative payment arrangements. However, we do not know whether or for how much longer our counterparties will continue to cooperate with us.
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Our financial statements as of and for the years ended December 31, 2020, 2021 and 2022 contain a going concern emphasis, due in significant part to our negative working capital and more recently to the substantial decline in demand for air travel as a result of the effects of developments relating to the COVID-19 pandemic and the actions taken by the Brazilian government to address it, which are largely out of our control.
The consolidated financial statements included in this annual report have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets and satisfaction of liabilities and commitments in the normal course of business. However, we currently operate with a significantly negative working capital, and there is significant uncertainty about our ability to continue as a going concern. Our independent registered public accounting firm in each of 2020, 2021 and 2022, in its report on our consolidated financial statements as of and for the years ended December 31, 2020, 2021 and 2022, expressed substantial doubt regarding our ability to continue as a going concern.
We rely on one manufacturer for our aircraft and engines and any negative developments relating to Boeing 737 MAX aircraft would materially and adversely affect us.
One of the key elements of our business strategy and a key element of the low-cost carrier business model is to reduce costs by operating a standardized aircraft fleet. After extensive research and analysis, we chose the 737-700/800 Next Generation aircraft manufactured by The Boeing Company, or Boeing, which we are now, on an accelerated basis, replacing with Boeing 737 MAX aircraft, and 56-7B engines manufactured by CFM International, or CFM. We expect to continue to rely on Boeing and CFM for the foreseeable future and delivery and operation of the Boeing 737 MAX aircraft are crucial to our strategy and fleet modernization initiatives.
We derive benefits from a fleet comprised of a standardized type of aircraft while still having the flexibility to match the capacity and range of the aircraft to the demands of each route. If we had to lease or purchase aircraft of another manufacturer, we could lose these benefits. We cannot assure you that any such replacement aircraft would have the same operating advantages as the Boeing aircraft or that we could lease or purchase engines that would be as reliable and efficient as the CFM engines. In addition, replacement aircraft may require additional training of our pilots and crew, as well as our maintenance staff, and could materially affect our operations and require us to make significant unexpected expenditures. Our operations could also be disrupted by the failure or inability of Boeing or CFM to provide sufficient parts or related support services on a timely basis.
Following two accidents involving Boeing 737 MAX aircraft, regulators grounded the aircraft in March 2019, and we resumed our operations of the 737 MAX in November 2020. As our operations have been designed around the single fleet model, if there is any future grounding of the MAX aircraft or if there are additional delays in delivery of our ordered aircraft, we may face increased maintenance costs, experience operational disruptions and decreases in customer ratings, be unable to realize our expected fuel cost efficiencies, incur increased aircraft lease costs and risk facing a shortage of available aircraft, which may limit our growth plans and the execution of our long-term strategy.
Our reliance on single suppliers for our aircraft and engines means that any of these developments relating to Boeing 737 MAX aircraft or CFM engines would materially and adversely affect us.
Changes to the Brazilian civil aviation regulatory framework, including slot distribution rules, fare restrictions, fees associated with civil aviation and regulations relating to climate change, may adversely affect us.
Brazilian aviation authorities monitor and influence the developments in Brazil’s airline market. For example, airport services are regulated by ANAC and, in many cases, still managed by the Brazilian Airport Infrastructure Company (Empresa Brasileira de Infraestrutura Aeroportuária), or INFRAERO, a government-owned corporation. ANAC’s policies, as well as those of other aviation supervisory authorities, including relating to new routes and flight frequencies, may adversely affect us. ANAC considers operating history and efficiency (on-time performance and regularity) as the main criteria for the allocation of slots. Under its rules, on-time performance and regularity are assessed twice per year, following the International Air Transport Association, or IATA, summer and winter calendars, between April and September and between October and March. The minimum regularity performance target for each series of slots in a season is 90% at Congonhas (São Paulo) and 80% for Guarulhos (São Paulo), Santos Dumont (Rio de Janeiro) and Recife. The on-time performance, since 2018, is measured through the method of statistical tendency that compares the performance of all airlines for each airport. Airlines forfeit slots used below the minimum criteria in a season. Forfeited slots are redistributed first to new entrants, which includes airlines that operate fewer than five slots in the affected airport in the given weekday, and are subsequently returned to the slots database and redistributed according to regulations.
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As of the date of this annual report, there are ongoing privatizations of two of the most important airports for our operations: Congonhas (São Paulo) and Santos Dumont (Rio de Janeiro). We cannot foresee how these privatizations will affect our operations. In addition, we cannot foresee changes to the Brazilian civil aviation regulatory framework, which could increase our costs, change the competitive dynamics of our industry and adversely affect us, including as discussed in “—We operate in a highly competitive industry.”
In addition, the airline industry is subject to potential increased regulation to address climate change, including aimed at reducing carbon emissions. Compliance with more stringent environmental regulations may require significant capital expenditures and add pressure to our liquidity, while failure to comply with existing or future regulations or to otherwise manage the risks of climate change effectively could otherwise materially and adversely affect us.
Technical and operational problems in the Brazilian civil aviation infrastructure, including air traffic control systems, airspace and airport infrastructure, may adversely affect us.
We depend on improvements in the coordination and development of Brazilian airspace control and airport infrastructure, which continue to require substantial improvements and government investments.
If the measures taken and investments made by the Brazilian government and regulatory authorities do not prove sufficient or effective, air traffic control, airspace management and sector coordination difficulties might reoccur or worsen, which may adversely affect us.
Slots at Congonhas airport in São Paulo, the most important airport for our operations and the busiest one in Brazil, are fully utilized on weekdays. The Santos Dumont airport in Rio de Janeiro, a highly utilized airport with half-hourly shuttle flights between São Paulo and Rio de Janeiro, also has certain slot restrictions. Several other Brazilian airports, including the Brasília, Campinas, Salvador, Confins and São Paulo (Guarulhos) international airports, have limited the number of slots per day due to infrastructural limitations at these airports. Any condition that would prevent or delay our access to airports or routes that are vital to our strategy or our inability to maintain our existing slots, and obtain additional slots, may adversely affect us. In addition, we cannot assure that any investments will be made by the Brazilian government in the Brazilian aviation infrastructure (by expanding additional or developing new airports) to permit our growth.
We have significant recurring aircraft expenses, and we will incur significantly more fixed costs that could hinder our ability to meet our strategic goals.
We have significant costs, relating primarily to leases for our aircraft and engines. As of the date of this annual report, we have significant accumulated lease obligations that were deferred in the context of the COVID-19 global pandemic. In addition, as of December 31, 2022, we had aircraft purchase commitments with Boeing for an aggregate present value of R$20,574.8 million (US$3,943.3 million) for deliveries through 2026. Our accelerated return of Boeing 737 Next Generation aircraft as part of our fleet renewal plan also requires significant cash expenditures. We expect that we will incur additional fixed obligations and indebtedness as we receive the new aircraft and other equipment to implement our strategy.
These significant fixed payment obligations:
| · | could limit our ability to obtain additional financing to support expansion plans and for working capital and other purposes; |
| · | divert substantial cash flows from our operations to service our fixed obligations under aircraft operating leases and aircraft purchase commitments; |
| · | if interest rates increase, require us to incur significantly more lease or interest expense than we currently do; and |
| · | could limit our ability to react to changes in our business, the airline industry and general economic conditions. |
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In 2022 and 2023 to-date, our liquidity has adversely affected our operations in the context of recovering demand, as certain of our aircraft remain non-operational due to recent liquidity limitations.
Our ability to make scheduled payments on our fixed obligations will depend on our operating performance and cash flow, which will in turn depend on prevailing macroeconomic and political conditions and financial, competitive, regulatory, business and other factors, many of which are beyond our control. In addition, our ability to raise our fares to compensate for an increase in our fixed costs may be limited by competition and regulatory factors.
We operate in a highly competitive industry.
We face intense competition on all routes we operate from existing scheduled airlines, charter airlines and potential new entrants in our market. Competition from other airlines has a relatively greater impact on us when compared to our competitors because we have a greater proportion of flights connecting Brazil’s busiest airports, where competition is more intense. In contrast, some of our competitors have a greater proportion of flights connecting less busy airports, where there is little or no competition. In addition, we cannot foresee how the recent financial distress of our main competitors will affect the competitive landscape.
The Brazilian airline industry also faces competition from ground transportation alternatives, such as interstate buses. In addition, the Brazilian government and regulators could give preference to new entrants and existing competitors when granting new and current slots in Brazilian airports in order to promote competition.
Existing and potential competitors have in the past and may again undercut our fares or increase capacity on their routes in an effort to increase their market share of business traffic (high value-added customers). In any such event, we cannot assure you that our level of fares or passenger traffic would not be adversely affected.
Changes in the Brazilian and global airline industry framework may adversely affect us.
As a result of the competitive environment, there may be further changes in the Brazilian and global airline industry, whether by means of acquisitions, joint ventures, partnerships or strategic alliances. We cannot predict the effects of further consolidation on the industry. For example, in May 2020, LATAM Airlines Group and Avianca Holdings S.A., the two largest Latin American airlines at the time, filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code, with the former emerging from bankruptcy proceedings in November 2022 and the latter in December 2021, in each case with significant liquidity. Consolidation in the airline industry and changes in international alliances will continue to affect the competitive landscape in the industry and may result in the formation of airlines and alliances with greater financial resources, more extensive global networks and lower cost structures than we can obtain.
We rely on complex systems and technology and any operational or security inadequacy or interruption could materially and adversely affect us.
In the ordinary course of our business, our systems and technology require ongoing modification and refinements, which can to be expensive to implement and may divert management’s attention from other matters. In addition, our operations could be adversely affected, or we could face regulatory penalties, if we were unable to timely or effectively modify our systems as necessary.
We have occasionally experienced system interruptions and delays that make our websites and services unavailable or slow to respond, which could prevent us from efficiently processing customer transactions or providing services. This could reduce our net revenue and the attractiveness of our services. Our computer and communications systems and operations could be damaged or interrupted by catastrophic events such as fires, floods, earthquakes, power loss, computer and telecommunications failures, acts of war or terrorism, computer viruses, cybersecurity breaches and similar events or disruptions. Any of these events could cause system interruptions, delays and loss of critical data, and could prevent us from processing customer transactions or providing services, which could make our business and services less attractive and subject us to liability. Any of these events could damage our reputation and be expensive to remedy.
In August 2021, we switched our passenger service system to Sabre, which is one of the most used by airlines. The transition during the second half of 2021 resulted in issues with our website useability and customers’ ability to book flights. We cannot assure you we will not face additional issues deriving from our passenger service system or other technology.
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Unauthorized access to or release or violation of our or our business partners’ systems and data could materially and adversely affect us.
We are subject to a broad range of cyber threats, including attacks, with varying levels of sophistication. These cyber threats are related to the confidentiality, availability and integrity of our systems and data, including our customers’ and business partners’ confidential, classified or personal information. In addition, because we have access to certain information technology systems of certain of our business partners, our systems may be subject to attacks aimed at accessing, tampering with or exposing our business partners’ systems and their data.
In addition, certain of our business partners, including our suppliers, have broad access to certain of our confidential and strategic information. Many of these business partners face similar security threats and any attacks on their systems could result in unauthorized access to our systems or data. Any unauthorized access to, or release or violation of our systems and data, whether directly or through cyberattacks or similar breaches affecting our business partners, could materially and adversely affect us, including subjecting us to regulatory scrutiny and fines.
We rely on maintaining a high daily aircraft utilization rate to increase our revenues and reduce our costs.
One of the key elements of our business strategy and an important element of the low-cost carrier business model is to maintain a high daily aircraft utilization rate, which we measured as 9.6 block hours per day in 2020, 10.0 block hours per day in 2021 and 11.0 block hours per day in 2022. High daily aircraft utilization, which we were not able to maintain during the COVID-19 global pandemic, generally allows us to generate more revenue from our aircraft and dilute our fixed costs and is achieved in part by operating with quick turnaround times at airports so we can fly more hours on average in a day. Our rate of aircraft utilization could be adversely affected by a number of different factors that are beyond our control, including, among others, air traffic and airport congestion, adverse weather conditions, including as a result of climate change, and delays by third-party service providers relating to matters such as fueling and ground handling.
We may be adversely affected by events out of our control, including accidents and pandemics.
Accidents or incidents involving our aircraft could result in significant claims by injured passengers and others, as well as significant costs related to the repair or replacement of damaged aircraft and temporary or permanent loss from service. We are required by ANAC and lessors of our aircraft under our operating lease agreements to carry liability insurance. Although we believe we maintain liability insurance in amounts and of the type generally consistent with industry practice, the amount of such coverage may not be adequate and we may be forced to bear substantial losses in the event of an accident. Substantial claims resulting from an accident in excess of our related insurance coverage would harm us. Any accidents or incidents involving our or any other Boeing 737 Next Generation or Boeing 737-8 MAX aircraft or the aircraft of any major airline have and may again cause negative public perceptions about us, and, consequently, adversely affect us.
Our controlling shareholders have the ability to direct our business and affairs and their interests could conflict with yours.
Our controlling shareholders have the power to, among other things, elect a majority of our directors and determine the outcome of any action requiring shareholder approval, including transactions with related parties, corporate reorganizations and dispositions and the timing and payment of any dividends. The chairman of our board of directors, Constantino de Oliveira Junior, has since our inception been the fundamental figure of our company, and has directed our company initially as its chief executive officer, and, since 2012, as the chairman of our board of directors. As of December 31, 2022, the Constantino family, which indirectly controls us, held 53.9% of the economic interest in us. A difference in economic exposure may intensify conflicts of interests between our controlling shareholders and you. See “Item 9. The Offer and Listing—C. Markets—Corporate Governance Practices.”
For information on recent changes to our shareholding structure, see “Item 4. Information on the Company—A. History and Development of the Company—Recent Developments.”
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Risks Relating to the ADSs and Our Preferred Shares
The relative volatility and illiquidity of the Brazilian securities markets, and securities issued by airlines in particular, may substantially limit your ability to sell the preferred shares underlying the ADSs at the price and time you desire.
Investing in securities that trade in emerging markets, such as Brazil, often involves greater risk than investing in securities of issuers in the United States, and such investments are generally considered to be more speculative in nature. The Brazilian securities market is substantially smaller, less liquid, more concentrated and can be more volatile than major securities markets in the United States. Accordingly, although you are entitled to withdraw the preferred shares underlying the ADSs from the depositary at any time, your ability to sell the preferred shares underlying the ADSs at a price and time at which you wish to do so may be substantially limited. There is also significantly greater concentration in the Brazilian securities market than in major securities markets in the United States. As of December 31, 2022, the ten largest companies in terms of market capitalization represented 46.3% of the aggregate market capitalization of the B3.
The trading prices of shares of companies in the worldwide airline industry are relatively volatile and investors’ perception of the market value of the ADSs and preferred shares may be adversely affected by volatility and decreases in their trading prices.
Holders of the ADSs and our preferred shares may not receive any dividends.
According to our bylaws, we must pay our shareholders at least 25.0% of our annual net income as dividends, as determined and adjusted under Brazilian corporate law. Our adjusted net income may be capitalized, used to absorb losses or otherwise appropriated as allowed under Brazilian corporate law and may not be available to be paid as dividends. We may not pay dividends to our shareholders in any particular fiscal year if our board of directors determines that such distributions would be inadvisable in view of our financial condition. In the past five fiscal years, we did not distribute dividends.
If you surrender your ADSs and withdraw preferred shares, you risk losing the ability to remit foreign currency abroad and certain Brazilian tax advantages.
As an ADS holder, you benefit from the electronic foreign capital registration obtained by the custodian for our preferred shares underlying the ADSs in Brazil, which permits the custodian to convert dividends and other distributions with respect to the preferred shares into non-Brazilian currency and remit the proceeds abroad. If you surrender your ADSs and withdraw preferred shares, you will be entitled to continue to rely on the custodian’s electronic foreign capital registration for only five business days from the date of withdrawal. Thereafter, upon the disposition of or distributions relating to the preferred shares, you will not be able to remit non-Brazilian currency abroad unless you obtain your own electronic foreign capital registration.
If you attempt to obtain your own electronic foreign capital registration, you will incur expenses and may suffer delays in the application process, which could delay your ability to receive dividends or distributions relating to our preferred shares or the return of your capital in a timely manner.
Holders of the ADSs may be unable to exercise preemptive rights with respect to our preferred shares.
We may not be able to offer our preferred shares to U.S. holders of the ADSs pursuant to preemptive rights granted to holders of our preferred shares in connection with any future issuance of our preferred shares, unless a registration statement under the U.S. Securities Act of 1933, or the Securities Act, is effective with respect to such preferred shares and preemptive rights, or an exemption from the registration requirements of the Securities Act is available. We are not obligated to file a registration statement relating to preemptive rights with respect to our preferred shares, and we cannot assure you that we will file any such registration statement. If such a registration statement is not filed and an exemption from registration does not exist, the depositary bank will attempt to sell the preemptive rights, and you will be entitled to receive the proceeds of such sale. However, these preemptive rights will expire if the depositary does not sell them, and U.S. holders of the ADSs will not realize any value from grants of such preemptive rights.
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ITEM 4. Information on the Company
| A. | History and Development of the Company |
Overview
GOL is one of Brazil’s largest domestic airlines by market share, one of the largest low-cost carriers globally and the leading low-cost carrier in South America. We pioneered the low-cost carrier model in South America and believe we offer the best product and customer experience to business and leisure passengers. As a result of our experienced management, we believe we have built a resilient airline capable of maintaining sustainable competitive advantages throughout the business cycle.
Our strategy and business model allow us to adapt our supply to fluctuations in demand. Since our inception in 2001, we have had a strategic focus on sustainability and have been preparing ourselves to successfully operate in highly competitive business environments. Throughout 2022, we worked proactively with our stakeholders to further strengthen our position as the #1 airline in Brazil.
Founding
GOL was founded in 2000 and initiated operations in 2001, when entrepreneur Constantino de Oliveira Junior pioneered the low-cost carrier concept in Brazil. Constantino de Oliveira Junior has been key to GOL’s success, first as chief executive officer and, since 2012, as chairman of our board of directors. He continues to be the leading figure at GOL, both in helping set strategic direction and in his close supervision of and daily interaction with senior management. As of December 31, 2022, the Constantino family, which indirectly controls us, held 53.9% of the economic interest in us. Our corporate governance practices include a board of directors with a majority of independent members, a highly experienced executive management team and an independent audit committee.
GOL Effect
From our launch in 2001 until today, we have been a major driver behind passenger growth in Brazil. Between 2001 and 2019, Brazil’s domestic passenger market grew 3.2x, from 30.8 million passengers in 2001 to 95.3 million in 2019 (in 2022, there were 82.2 million domestic passengers). In the same period, Brazil’s international passenger market increased 4.1x, from 3.8 million passengers in 2001 to 9.1 million passengers in 2019 (in 2022, there were 4.2 million international passengers), excluding international carriers.
Much of this growth can be directly attributed to GOL and our low-cost carrier model. Our passenger market share in the domestic air transportation market, as measured by RPKs, increased from 4% in 2001 to 34% in 2022. We have transported more than 500 million passengers since we began our operations.
Importance of Air Transportation in Brazil
Brazil is geographically similar in size to the continental United States and, according to IATA’s 2018 data, Brazil is the sixth largest domestic airline market in the world, after the United States, China, India, Indonesia and Japan. Brazilian domestic air passenger demand grew 40% in 2022 following developments relating to the COVID-19 global pandemic in 2020 and 2021.
Competitive Strengths
We believe we are one of the most sustainable Latin American carriers, based on our unique business model and competitive strengths:
| · | Lowest Cost and Strongest Operating Margins: |
| o | Since inception, we have had the lowest operating costs of any Brazilian airline, with a CASK ex-fuel of R$31.87 cents in 2021 and R$20.48 cents in 2022, and we have one of the lowest cost models among airlines globally. |
| o | We have had for many years one of the highest EBITDA margins among our Latin American peers. |
| o | Our fleet of Boeing 737 aircraft provides operational advantages that make it optimally suited for our low-cost carrier model. |
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| · | Flexible, Single Fleet Type: |
| o | Our single fleet strategy provides significant operational flexibility. In 2019, we had best in class aircraft utilization, with 12.3 block hours per day, one of the highest in the world. Our aircraft financings are structured for maximum operational flexibility. During the COVID-19 pandemic, we were able to maintain our high block hours at 9.6 in 2020 and 10.0 in 2021, due to the reduction in our operating fleet, and 11.0 in 2022 in light of demand recovery. We retain full optionality to extend leases or return aircraft at maturity, providing significant flexibility in managing our fleet size. |
| o | As of December 31, 2022, our total fleet comprised 146 Boeing 737 aircraft, of which 108 were Next Generation aircraft and 38 were MAX aircraft – 142 are under operating leases, which provides us with important operational flexibility in light of recovering demand for air travel. As of the date of this annual report, certain of our aircraft remain non-operational due to recent liquidity limitations. We have accelerated our fleet transformation plan in order for MAX aircraft to comprise 50% of our total fleet by 2024. As part of this plan, in August 2021, we entered into purchase agreements for 28 additional MAX aircraft to replace Next Generation aircraft. Of these 28 new aircraft, four have been and six will be purchased under finance leases, which represents our return to finance leased aircraft since 2013. We believe the addition of finance leased aircraft presents an opportunity to optimize our capital structure and the financial sustainability of our fleet management. |
| o | We had an average operating fleet of 103 aircraft in 2022, representing 141.1% and 145.1% of our average operating fleet in 2021 and 2020, respectively. |
| o | In early 2022, there was a surge in the number of reported COVID-19 cases, as a result of which our peers, in Brazil and globally, cancelled more than 1,500 flights. Through our flexible business model based on a single fleet type, we did not suffer an operational impact and maintained 99% of our scheduled flights and market leadership in domestic routes. Throughout 2022, flights across our network resumed and our operations normalized at close to pre-pandemic levels, having reached, in the fourth quarter of 2022, 86% of our capacity, as measured by ASKs, in the same period in 2019. |
| o | Since 2001, we have forged a deep relationship with Boeing, allowing us to obtain favorable terms for the pricing and delivery of aircraft. Attractive pricing, together with our financing strategy, allow us to create significant value in our aircraft acquisitions. |
| · | Highest Load Factors and Passenger Capacity: Our load factor has been best-in-class in Brazil for many years. Even during the peaks of the pandemic, in April and May 2020 and in February and March 2021, with a largely reduced fleet and flight network, we reported load factors above 75%. In 2020, although our total demand decreased 51.9%, as compared to 2019, we were the only airline in Brazil that kept our average load factor at 80.0%, due to our fleet size flexibility. In 2021, in the context of recovering demand as compared to 2020, we increased our average load factor by 1.9 percentage points. In 2022, our load factor was 80.0%. Our single fleet model and proactive fleet management increased our fleet flexibility, which allowed us to follow varying demand levels for flights without meaningfully impacting our load factors. |
| · | Dominant Market Position in Key Airports: We are the largest player in two of the ten busiest airports in Brazil, with an average market share in 2022 of 40.6%, and we were the leading airline in 26.7% of the 30 largest airports in Brazil in 2022, which together represented 92.5% of Brazilian domestic passenger air traffic. |
| · | Meaningful ESG Track Record and Initiatives: Since 2010, we have prepared annual sustainability reports based on Global Reporting Initiative guidelines, an international standard for reporting environmental, social and economic performance. By adopting these parameters and providing related data to the public, we are reinforcing our accountability with various stakeholders through added transparency and credibility. Among our initiatives are our voluntary adherence, since 2016, to the carbon pricing leadership coalition, which is a global initiative to price carbon emissions, as well as multiple campaigns and associations dedicated to promoting best ESG practices both in the airline industry and generally. From 2017 to 2019, we had the lowest indicator of CO2 emissions by capacity (measured as metric tons of CO2/ASK) among the main global airlines. Our ESG strategy is directly linked to our fleet plan as our accelerated fleet transformation to Boeing 737 MAX aircraft is a key component of our goal to reach carbon neutrality by 2050. Boeing 737 MAX aircraft consume 15% less fuel and produce 16% fewer carbon emissions and 40% less noise than the Boeing 737 Next Generation aircraft that we are replacing. The 23,000 flight hours that we have flown so far with Boeing 737 MAX aircraft since 2019 through 2021 have saved 9.7 million liters of jet fuel and emitted 24,300 fewer tons of greenhouse gas emissions. In addition, we maintain social initiatives relating to our workforce, customer satisfaction and safety, as well as governance initiatives through leadership, committees, policies and shareholder meetings. We promote diversity and inclusion groups to address racial and gender equity, as well as LGBT+, accessibility, ageism and environmental matters. |
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| · | Highest Ranking in Customer Service: We have made a significant investment in our product offering, including features such as loyalty program integration, onboard service, onboard entertainment and comfortable seats, among others. We believe we offer more complete products and services than any other leading global low-cost carrier, allowing us to capture the largest portion of premium business and economy leisure customers. Both groups of customers value the experience we offer, allowing us to extract higher yields and a leading share of customer wallet. We are a leader in technology development and digital solutions, enabling us to offer the best passenger experience, with a Net Promoter Score of 41 in 2022. |
| · | Best Route Network and Global Partnerships: We have a highly integrated network, operating the most flights at Brazil’s busiest airports. Before the COVID-19 pandemic commenced in Brazil, we were, in 2019, the largest Brazilian airline with over 36 million annual passengers transported and a domestic market share of 38.0%, as measured by RPKs. In 2022, our domestic market share was 33.7%. We operate the leading Brazilian airline loyalty program, with 20.5 million members as of December 31, 2022. We have entered into 14 codeshare agreements, 15 frequent flyer agreements and 38 interline agreements, allowing our customers to connect seamlessly to 214 airports around the world. Our expanded commercial cooperation with American Airlines, the leading provider of air service between the United States and Brazil, through an exclusive codeshare agreement and a US$200.0 million equity investment in us in 2022, strengthened the relationship between the two airlines. |
| · | Domestic Market Focus: Our network of flights has always been focused on national and regional routes within South America and Brazil, which are returning to normal levels of traffic faster than inter-continental routes prioritized by our Brazilian competitors. In addition, as recovery in the demand for international air travel lags behind domestic air travel, we are particularly well-positioned to take advantage of the recovery in Brazilian passenger air travel. |
| · | Leading Loyalty Program: Our loyalty program Smiles is one of the largest coalition loyalty programs in Brazil, with 20.5 million members as of December 31, 2022. Our Smiles business model is based on a pure coalition loyalty program comprising a single platform for accumulating and redeeming miles through a broad network of commercial and financial partners. Our Smiles business provides us with significant revenues derived from the redemption and expiration of miles. In addition, Smiles provides an incentive for customer air travel bookings, thereby boosting ticket sales and our number of repeat customers. |
| · | Leading Cargo Business: We are Brazil’s third largest cargo airline with a 27.8% market share in 2022 as measured by ATKs, and our cargo revenues increased 46.7% in 2022, as compared to 2021, representing 3.4% of our gross revenue in 2022. Through GOLLOG, we generate cargo revenue through the use of cargo space on regularly scheduled passenger aircraft. Our cargo business has grown at higher rates than our passenger travel business, in large part because we count with an excellent and diversified base of clients in the B2B segment and e-commerce markets, and are well-positioned to support this market’s expected growth as we forge and strengthen our client relationships. We are committed to delivering quality logistics solutions and believe our cargo business will be an increasingly important contributor to our financial performance. |
| · | Leading MRO Service Provider: GOL Aerotech is our business unit dedicated to providing MRO services, including to third parties. We have 15 years of experience providing maintenance, preventive maintenance and modifications on our aircraft. GOL Aerotech represents an important cost saving source for us as we are able to rely on local workforce instead of relying on other maintenance providers that would expose us to exchange rate variations and higher market pricing. Our local maintenance services also reduce our repair and logistics costs, as well as engine off-time and replacement time, and support our sustainability efforts as we do not have to transport aircraft to third-party maintenance facilities. We have expanded our MRO services to other airlines and what began as a cost-saving initiative has become a revenue generating opportunity. As of the date of this annual report, we have three maintenance units (Confins, Brasília and Congonhas) and continue to seek expansion opportunities for our GOL Aerotech business. |
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| · | GOLLabs: GOLLabs is our innovation business dedicated to researching and developing new technologies and services to generate new revenues and reduce costs, including by optimizing our pricing and route strategies and enhancing our customer experience through initiatives such as face recognition technology to facilitate check-in and boarding procedures, media streaming partnerships to provide enhanced entertainment options and a customer service platform through mobile chat applications, among others. GOLLabs is responsible for the entire lifecycle of the development of an innovative concept, including market testing and analytics and implementation and training, and plays a key role in creating value in our other business lines. |
Throughout the challenging last three years we maintained steady liquidity by optimizing our capital structure.
We entered into discussions with key suppliers to reduce our costs and adjust them to our revised network and fleet profiles. We were able to make significant adjustments to our working capital by extending our payment terms and managing other current assets and liabilities. In December 2022, we issued two series of secured notes in an aggregate principal amount of US$196.0 million. The notes were issued in exchange for full satisfaction, at 100% of face value, of certain aircraft leasing payment obligations that were under deferral agreements, among other obligations that the participating aircraft lessors chose to exchange for the notes.
We manage our business by matching cash inflows with outflows in an efficient manner. As of December 31, 2022, we had approximately R$1.5 billion in total liquidity and, including financeable amounts of deposits and unencumbered assets, our potential liquidity sources reached approximately R$3.5 billion. We will continue to seek to manage our negative working capital of R$10.8 billion, as of December 31, 2022, by reducing costs and rolling over and deferring short-term obligations with our suppliers and counterparties, most of which have been supportive of GOL. For further information, see “Item 3. Key Information—D. Risk Factors—Risks Relating to Us and the Brazilian Airline Industry—We may not be able to maintain adequate liquidity and our cash flows from operations and financings may not be sufficient to meet our current obligations.”
Operating Data Highlights
The following tables set forth our main operating performance indicators as of the dates and for the periods presented:
|
December 31, | |||
|
2020 |
2021 |
2022 | |
| Operating aircraft at year end | 127 | 132 | 110 |
| Total aircraft at year end | 127 | 135 | 146 |
| Revenue passengers carried (in thousands)(1) | 16,701 | 18,848 | 27,269 |
| RPKs (in millions)(1) | 20,128 | 22,237 | 32,628 |
| ASKs (in millions)(1) | 25,144 | 27,132 | 40,789 |
| Load factor | 80.1% | 82.0% | 80.0% |
| Aircraft utilization (block hours per day) | 9.6 | 10.0 | 11.0 |
| Average fare (R$) | 345 | 357 | 504 |
| Passenger revenue yield per RPK (R$ cents) | 28.7 | 30.9 | 43.4 |
| PRASK (R$ cents) | 23.0 | 25.4 | 34.7 |
| RASK (R$ cents) | 25.3 | 27.4 | 37.3 |
| CASK (R$ cents) | 29.1 | 41.5 | 35.9 |
| CASK ex-fuel (R$ cents) | 21.1 | 31.8 | 20.5 |
| Adjusted CASK (R$ cents)(2) | 25.4 | 33.5 | 34.1 |
| Adjusted CASK ex-fuel (R$ cents)(2) | 17.4 | 23.8 | 18.7 |
| Departures | 124,528 | 133,902 | 202,086 |
| Departures per day | 340 | 367 | 553 |
| Average stage length (kilometers) | 1,152 | 1,137 | 1,143 |
| Active full-time equivalent employees at year end | 13,899 | 13,969 | 14,048 |
| Fuel liters consumed (in millions) | 722 | 751 | 1,113 |
| Average fuel expense per liter (R$) | 2.55 | 3.51 | 5.81 |
_____________
| (1) | Source: National Civil Aviation Agency (Agência Nacional de Aviação Civil), or ANAC. |
| (2) | We calculate adjusted CASK as CASK excluding non-recurring results, net and expenses related to fleet and labor idleness. |
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Recent Developments
In May 2022, MOBI Fundo de Investimento em Participações, or MOBI FIA, entered into a master contribution agreement, which was subsequently amended and restated in February 2023, with certain principal shareholders of Avianca’s holding company. Pursuant to this master contribution agreement, in March 2023, MOBI FIA contributed its shares in GOL to a holding company structure named Abra Group Limited, which subsequently transferred these shares in GOL to Abra Mobi LLP and Abra Kingsland LLP. As of the date of this annual report, Abra Mobi LLP (controlled by the Constantino family) holds 50% voting control over us and Abra Kingsland LLP (controlled by Kingsland International Group S.A.) holds the other 50% voting control; Abra Group Limited continues to hold the entirety of the economic rights of the shares in GOL that it received from MOBI FIA.
In March 2023, Abra Global Finance, a finance subsidiary of Abra Group Limited, committed to purchase our senior secured notes due 2028 and exchangeable senior secured notes due 2028, in each case secured by certain Smiles intellectual property and the Smiles brand, as well as certain spare parts. A portion of the commitment comes from members of an ad-hoc group of secured and unsecured bondholders of GOL, who entered into a support agreement that will facilitate the investment in GOL by the Abra entities. The senior secured notes due 2028 accrue interest at a rate of 18.0% per annum, of which 4.5% will be paid in cash and 13.5% will be paid in kind, and will be issued for up to an aggregate principal amount of US$1.4 billion. Subject to certain conditions and approvals, Abra Group Limited may exchange these senior secured notes due 2028 for exchangeable senior secured notes due 2028. Following the execution of the amendment to the support agreement and the delivery by the members of the ad-hoc group of GOL bonds pursuant to the support agreement, the members of the ad-hoc group delivered 83% of the outstanding exchangeable senior notes due 2024, 47% of the outstanding senior notes due 2025, 61% of the outstanding senior secured notes due 2026 and 10% of the outstanding perpetual notes.
| B. | Business Overview |
Airline Business
Routes and Schedules
Our operating model is based on a highly integrated route network that is a combination of the point-to-point, hub and spoke and multiple-stop models. This combination increases the connectivity of our network, permitting travelers to fly from a given point of origin to more destinations, while maintaining a low-cost structure, improving aircraft and crew scheduling efficiency and reducing our carbon emissions. The high level of integration of flights at selected airports allows us to offer frequent, non-stop flights at competitive fares between Brazil’s most important cities. Our network also allows us to increase our load factors on our strongest city pair routes by using the airports in those cities to connect our customers onwards to their final destinations.
Our operating model allows us to build our flight routes to add destinations to cities that would not be feasible to serve in the traditional point-to-point model individually, but that are feasible to serve when simply added as additional points on our multiple-stop flights. We focus on the Brazilian and South American markets, with hubs in São Paulo, Rio de Janeiro, Brasília and Fortaleza, and carefully evaluate opportunities for continued growth. We seek to increase the frequency of our flights to existing high-demand markets and add new routes to our network to destinations that can be reached with our current Boeing 737 Next Generation aircraft (for example, destinations in the Caribbean). Our Boeing 737 MAX aircraft permit us to offer reduced flight times to passengers that currently make connections in South American hubs on their route to the United States, Europe and Africa.
As a low-cost carrier operating a single fleet type, we work through alliances and codeshare arrangements with large international carriers and regional carriers in order to serve destinations that cannot be served by our Boeing 737 aircraft due to airport infrastructure or local market conditions.
We have for many years maintained our position as the leading airline in number of passengers transported in Brazil. In 2021 and 2022, we transported over 19.2 million and 27.9 million passengers, respectively, in the domestic market and had a market share of 31.7% and 33.7%, respectively, as measured by RPKs. Our performance during the challenging past few years demonstrates our operational resilience and excellence, as well as our flexibility to adapt our network and operations in response to demand trends.
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Together with our regional partners, including VoePass Linhas Aéreas and MAP Linhas Aéreas, we serve the largest regional network in Brazil. Because regional carriers feed traffic to our hubs and routes from low-density markets we do not directly serve, they are integral to our operating network.
We use our dominant market position at our main hubs to support traffic by offering connecting flights to our customers throughout our network.
Under our business model and route network, we have flexibility to increase direct flights during the high season because we have a dominant position in main high density airports, and to increase connecting flights during the low travel season to increase load factors.
The following tables sets forth our leading market share in 2021 and 2022 in the most economically important states and our market share in domestic passenger air traffic at the busiest airports in Brazil, which are the airports expected to lead the recovery of the Brazilian airline industry:
2021
| Main Brazilian Airports (by domestic passengers)(1) |
State | State Share of Brazilian GDP(2) | GOL’s Share of Airport’s Total Domestic Flights(3) | Domestic Passengers(1) (in thousands) | ||
| Total | GOL | GOL’s Share | ||||
| São Paulo (CGH) | São Paulo | 31.2% | 34.8% | 9,655 | 3,702 | 38.3% |
| São Paulo (GRU) | 36.2% | 20,429 | 8,063 | 39.5% | ||
| Campinas (VCP) | 2.2% | 9,867 | 255 | 2.6% | ||
| Rio de Janeiro (SDU) | Rio de Janeiro | 9.9% | 24.7% | 6,826 | 1,878 | 27.5% |
| Brasília (BSB) | Distrito Federal | 3.5% | 34.1% | 10,393 | 3,922 | 37.7% |
| Belo Horizonte (CNF) | Minas Gerais | 9.0% | 12.1% | 6,733 | 963 | 14.3% |
| Porto Alegre (POA) | Rio Grande do Sul | 6.2% | 24.5% | 4,746 | 1,307 | 27.5% |
| Salvador (SSA) | Bahia | 4.0% | 35.0% | 5,334 | 2,274 | 42.6% |
| Recife (REC) | Pernambuco | 2.5% | 17.6% | 7,436 | 1,398 | 18.8% |
| Fortaleza (FOR) | Ceará | 2.2% | 41.0% | 3,893 | 1,685 | 43.3% |
| Main Airports | 68.6% | 25.8% | 85,314 | 25,447 | 29.8% | |
2022
| Main Brazilian Airports (by domestic passengers)(1) |
State | State Share of Brazilian GDP(2) | GOL’s Share of Airport’s Total Domestic Flights(3) | Domestic Passengers(1) (in thousands) | ||
| Total | GOL | GOL’s Share | ||||
| São Paulo (CGH) | São Paulo | 31.2% | 40.6% | 18,158 | 7,960 | 43.8% |
| São Paulo (GRU) | 34.5% | 23,719 | 8,600 | 36.3% | ||
| Campinas (VCP) | 3.5% | 11,206 | 452 | 4.0% | ||
| Rio de Janeiro (SDU) | Rio de Janeiro | 9.9% | 32.3% | 10,187 | 3,592 | 35.3% |
| Brasília (BSB) | Distrito Federal | 3.5% | 37.9% | 13,045 | 5,378 | 41.2% |
| Belo Horizonte (CNF) | Minas Gerais | 9.0% | 16.0% | 9,216 | 1,886 | 20.5% |
| Porto Alegre (POA) | Rio Grande do Sul | 6.2% | 28.3% | 6,361 | 2,022 | 31.8% |
| Salvador (SSA) | Bahia | 4.0% | 41.3% | 6,329 | 3,121 | 49.3% |
| Recife (REC) | Pernambuco | 2.5% | 17.4% | 8,462 | 1,817 | 21.5% |
| Fortaleza (FOR) | Ceará | 2.2% | 33.0% | 5,514 | 1,970 | 35.7% |
| Main Airports | 68.6% | 28.7% | 112,197 | 36,798 | 32.8% | |
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| (1) | According to ANAC data for departures and arrivals. |
| (2) | According to the IBGE in 2020. |
| (3) | Our market share of the total number of domestic departures and arrivals based on ANAC data for departures and arrivals for the respective year. |
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Services
Passenger Transportation
In order to offer high-quality and consistent value-proposition services to our corporate and leisure customers, we pay particular attention to the details that provide for a pleasant, complication-free flying experience, including:
| · | convenient online sales, check-in, seat assignment and flight change and cancellation services; |
| · | high frequency of flights between Brazil’s most important airports; |
| · | low cancellation and high on-time performance rates of our flights; |
| · | self-check-in at kiosks at designated airports; |
| · | friendly and efficient in-flight service; |
| · | free shuttle services between airports; |
| · | buy on-board services on certain flights; |
| · | free healthy snacks for all passengers, including options for kids; |
| · | mobile check-in for paperless boarding pass and smartphone application for Smiles account management; |
| · | more legroom and greater comfort (GOL+Conforto in the domestic flights and GOL Premium Class in the international flights); |
| · | complete platform of in-flight entertainment with Wi-Fi access, live television, movies and series; |
| · | premium domestic and international lounges for business class and premium Smiles passengers in the Guarulhos and Galeão airports; and |
| · | expansion of Smiles’ loyalty program to promotional fares. |
Because we understand that efficient and punctual operations are important to our customers, we strive to offer high rates of on-time performance and a high completion factor, as well as low rates of mishandled baggage, as set forth in the following table:
|
2020 |
2021 |
2022 | |
| On-time departures | 93.7% | 92.8% | 88.9% |
| Flight completion | 97.8% | 99.0% | 99.2% |
| Lost baggage (per 1,000 passengers) | 2.11 | 2.10 | 2.36 |
In general, passenger demand and profitability reach peak levels during the January and July vacation periods and in the final two weeks of December, during the Christmas holiday season. Conversely, we often witness a decrease in load factor during February or March, when annual carnival celebrations take place in Brazil. Given our high proportion of fixed costs, this seasonality causes our results of operations to vary from quarter to quarter.
Ancillary revenues, which under IFRS 15 are part of passenger revenues, include revenues from on-board sales, ticket change fees and various other services. Further development and growth of these services and, consequently, of related revenues are a key part of our strategy.
We are constantly evaluating opportunities to generate additional ancillary revenue, such as from sales of travel insurance, marketing activities and other services that allow us to capitalize on the large number of passengers on our flights and the high volumes of customers using our website. As of December 31, 2022, all of our aircraft had Wi-Fi installed, which is an additional and increasing source of revenue.
Mileage Program, Cargo and Other Revenues
Mileage program, cargo and other revenues include revenues from our GOLLOG services as well as from our Smiles loyalty program.
We make efficient use of extra capacity in our aircraft by carrying cargo, through GOLLOG. Our 85 flight destinations throughout Brazil, South America, the Caribbean and the United States provides us access to multiple locations in each region. With our capacity of approximately 554 daily flights, we can ensure quick and reliable cargo delivery for our customers.
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GOLLOG has developed an extensive portfolio of express services to meet the growing demand for door-to-door deliveries, fixed deadlines and additional optional services. We intend to increase our efforts in express delivery services by further strengthening our logistics capability, mainly by expanding our ground distribution network, increasing our commercial efforts and using innovation and technology to facilitate the boarding and tracking of cargo and to provide automatic updates to order status. Following is an overview of GOLLOG’s portfolio of services:
| · | GOLLOG Animais provides what we believe to be the best solution for the transportation of live animals, including all of the care required by live animals in transport and real-time information about the animal’s journey for customers to monitor. Net revenue generated by GOLLOG Animais increased over 260% in 2021, as compared to 2020. |
| · | GOLLOG Saúde was designed to serve the healthcare industry. To enhance GOLLOG Saúde’s services, we invested in a cold storage warehouse at the Guarulhos airport to maintain temperature-controlled cargo prior to boarding. |
| · | GOLLOG Urgente provides what we believe to be the fastest delivery option within Brazil, offering same-day deliveries for short routes, and has been an important component in GOLLOG maintaining its revenue yield. |
| · | GOLLOG Rápido, CHEGOL and CHEGOL Mini provide a range of cost-effective express delivery solutions for customers. |
Our Smiles loyalty program, with 20.5 million members as of December 31, 2021, provides us with significant revenues derived from the redemption and expiration of miles. In addition, our Smiles loyalty program provides an incentive for customer air travel bookings, thereby boosting ticket sales and our number of repeat customers.
Aircraft Fleet
In 2022, we advanced our fleet transformation plan to replace Boeing 737 Next Generation aircraft with Boeing 737 MAX aircraft. As of the date of this annual report, our fleet comprises 108 Boeing 737 Next Generation aircraft and 38 Boeing 737-8 MAX aircraft. We are able to adjust our capacity to match demand, which has been a competitive advantage for many years. We believe that our fleet structure and operational flexibility makes us the Brazilian airline best positioned to take advantage of the recovery in Brazilian domestic air travel.
For more information, see “Item 3. Key Information—D. Risk Factors—Risks Relating to Us and the Brazilian Airline Industry—We rely on one manufacturer for our aircraft and engines and any negative developments relating to the Boeing 737 MAX aircraft would materially and adversely affect us.”
The following table sets forth the composition of our total and operating fleet as of the dates indicated:
|
As of December 31, | ||||
|
Seats |
2020 |
2021 |
2022 | |
| B737-700 NG | 138 | 23 | 23 | 20 |
| B737-800 NG | 186 | 6 | 6 | 2 |
| B737-800 NG Short-Field Performance | 186 | 91 | 83 | 86 |
| B737-8 MAX | 186 |
7 |
23 |
38 |
| Total fleet | 127 | 135 | 146 | |
| Operating fleet | 127 | 132 | 142 | |
As of December 31, 2022, our 142 leases without purchase options had an average remaining term of 67 months.
Under our lease agreements without purchase options, we are required to maintain maintenance reserve payments or pay maintenance deposits and to return the aircraft and engine in the agreed condition at the end of the lease term. Title to the aircraft remains with the lessor. We are responsible for the maintenance, servicing, insurance, repair and overhaul of the aircraft during the term of the lease.
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The average age of our operating fleet as of December 31, 2022 was 10.4 years, and we expect that, as part of our accelerated fleet transformation plan, it will be reduced to approximately six years by 2025. The average daily utilization rate of our fleet was 9.6 block hours in 2020, 10.0 block hours in 2021 and 11.0 block hours in 2022.
Our Boeing 737-700/800 Next Generation aircraft are fuel-efficient and reliable and suit our cost efficient operations well because they:
| · | have comparatively standardized maintenance routines; |
| · | require just one type of standardized training for our crews; |
| · | use an average of 7% less fuel than other aircraft of comparable size, according to Boeing; and |
| · | have one of the lowest operating costs in their class. |
In addition to being cost-efficient, the Boeing 737-700/800 Next Generation aircraft are equipped with advanced technology that promotes flight stability, provides a comfortable flying experience for our customers and provides 13% lower CO2 emissions than other aircraft models. Our single fleet operating model is central to our strategy and we would only introduce a new type of aircraft to our fleet if, after careful consideration, we determine this would reduce our operating costs or if we were required to do so due to operational or delivery challenges beyond our control. Our Boeing 737 MAX aircraft:
| · | reduce our fuel consumption by up to 15%, in relation to the Boeing 737-800 Next Generation, and consume less fuel than other aircraft of comparable size; |
| · | reduce carbon emissions by up to 16% in relation to the Boeing 737-800 Next Generation; |
| · | are equipped with the latest technology and provide improved operational performance; |
| · | have an increased range and maximum take-off weight, or MTOW, as compared to both the 737-800 Next Generation and the A320neo; |
| · | deliver flight autonomy of up to 6,500 km (increased from 5,500 km) and MTOW up to 82 tons (increased from 70 tons); |
| · | have a significantly smaller noise footprint than other single-aisle airplanes; and |
| · | are equipped with Wi-Fi antennas that will allow our customers to access to the internet during flights and enjoy our on-board entertainment platform. |
Our configuration permits us to add up to nine additional seats to the Boeing 737 MAX’s configuration while maintaining the aircraft’s pitch that provides the most comfort to passengers in Brazil.
As of December 31, 2022, we had an order book of 66 Boeing 737-8 MAX and 25 Boeing 737-10 MAX aircraft, representing present value commitments of US$3,943.3 million (R$20,576.1 million, considering the U.S. dollar selling rate as of December 31, 2022, as reported by the Central Bank) for delivery through 2026. We are the main client of Boeing 737 MAX aircraft in South America and one of the eight largest in the world. As a result of our order book, we believe that the average age of our operating fleet, 10.4 years as of December 31, 2022, will be reduced to approximately six years by 2025, leading to lower maintenance costs and fuel consumption and, as a result, reduced greenhouse gas emissions.
Fleet Plan
The following table sets forth our year-end projected operating fleet through 2027 as of the date of this annual report:
| Projected Fleet Plan |
2023 |
2024 |
2025 |
| Boeing 737-700 NG | 15 | 13 | 13 |
| Boeing 737-800 NG | 65 | 66 | 64 |
| Boeing 737 MAX |
59 |
65 |
67 |
| Total |
139 |
144 |
144 |
Changes in price or competitive conditions or unexpected demand changes may change our fleet plans.
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Sales and Distribution
Our customers can purchase tickets directly from us through a number of different channels, including our website through our booking web services, our call center, at airport ticket counters and, to a lesser extent, global distribution systems (GDS). In August 2021, we switched our passenger service system to Sabre, which is one of the most used by airlines.
Our low-cost business model utilizes internet ticket sales as the primary distribution channel, especially in the local market. In 2021 and 2022, approximately 95% of our passenger revenue, whether directly from customers or through travel agents, were booked online, making us a global leader in this area.
In addition, our customers can purchase tickets indirectly through travel agents, which are a widely used travel service resource. In 2021 and 2022, travel agents provided us with distribution outlets in approximately 52 and 50 different countries, respectively. GDS allows us access to a large number of tourism professionals who are able to sell our tickets to customers around the world and enables us to enter into interline agreements with other airlines to offer more flights and connection options to our passengers, which adds incremental international passenger traffic.
Pricing
Brazilian airlines are permitted to establish their own domestic fares without previous government approval. Airlines are free to offer price discounts or follow other promotional activities. Airlines must submit, 30 days after the end of each month, a file containing fares sold and quantity of passengers for each fare amount, for all markets. This file lists regular fares and excludes all contracted, corporate and private fares. The objective is to monitor the average market prices. The same procedure applies for international fares. The only difference is that all fares sold for interline itineraries are excluded from the data sent to ANAC.
Yield Management
Yield management involves the use of historical data and statistical forecasting models to provide information about our markets and guidance on how to compete to maximize our net revenue. Yield management forms the backbone of our revenue generation strategy and is strongly linked to our route and schedule planning and our sales and distribution methods. Our yield management practices enable us to react quickly in response to market changes. For example, our yield management systems are instrumental in helping us to identify the flight times and routes for which we offer promotions. By offering lower fares for seats that our yield management indicates would otherwise remain unsold, we capture additional revenue and also stimulate customer demand.
Maintenance
By ANAC regulation, we are directly responsible for the execution and control of all maintenance services performed on our aircraft. Maintenance performed on our aircraft can be divided into two general categories: line and heavy maintenance.
Line maintenance comprises routine, scheduled maintenance checks on our aircraft, including pre-flight, daily and overnight checks and any diagnostics and routine repairs. All of our line maintenance is performed by our highly experienced technicians at our line maintenance service bases throughout Brazil and South America. We believe that our practice of performing daily preventative maintenance helps to maintain a high aircraft utilization rate, reduces maintenance costs and ensures a high level of safety.
Heavy maintenance comprises more complex inspections and servicing of aircraft that cannot be accomplished overnight. Heavy maintenance checks are performed following a pre-scheduled agenda of major overhauls defined by the aircraft’s manufacturer, based on the number of hours and flights flown by the aircraft. In addition, engine maintenance services are rendered in different MRO facilities.
We believe that our high aircraft utilization rate has not compromised our positioning in terms of performance and reliability when compared to other Boeing operators globally. We internalized heavy maintenance on our Boeing 737 Next Generation and 737 MAX aircraft in our Aircraft Maintenance Center (GOL Aerotech) at Tancredo Neves International Airport in Confins, in the State of Minas Gerais. We use this facility for airframe heavy checks, line maintenance, aircraft painting, components repairs and overhauls and aircraft interior refurbishment. In addition, we have GOL Aerotech operations in Congonhas and, since February 2022, in Brasília. For more information, see “—MRO: GOL Aerotech.”
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We have entered into two strategic MRO partnership agreements in order to provide maintenance services for our CFM 56-7, maintenance for parts and components on our fleet of Boeing 737 Next Generation and 737 MAX aircraft, as well as consulting services related to maintenance workflow planning, materials and facility optimization and tooling support.
We hold the FAA 145 Repair Station certification for C-checks, which are performed approximately every 20-24 months or based on a specific number of actual flight hours, at our maintenance center in Confins (GOL Aerotech) and certification by the European Aviation Safety Agency, or EASA, which is the European Union’s aeronautical authority.
To conduct maintenance on aircraft and aircraft components, we must be certified as a “maintenance organization.” This certification is granted by the country where the respective aircraft or components are operated. In Brazil, the certification is granted by ANAC and in the United States it is granted by the FAA. Therefore, in order to work on aircraft and aircraft components operating in the European Union, we would need a certification granted by EASA. However, in 2016, ANAC and EASA signed a bilateral agreement for the recognition of certifications granted by one another so that, after undergoing a validation process, Brazilian maintenance organizations can conduct maintenance on aircraft and aircraft components operating in the European Union and maintenance organizations in the European Union can do the same with regards to aircraft and aircraft components operating in Brazil. Our Aircraft Maintenance Center underwent the validation process of ANAC certification for EASA and is now authorized to conduct maintenance on aircraft and aircraft components operating in the European Union as if it were an entity directly certified by EASA. Some of the benefits of this validation are the recognition of the quality standards of our Aircraft Maintenance Center’s services and new maintenance opportunities, including servicing aircraft and aircraft components under redelivery or sub-leasing to E.U. countries, servicing that would have previously been outsourced. This implies possible cost reductions for us when we return or sub-lease aircraft and generates additional revenues from services on the aircraft and aircraft components of European airlines.
In 2020, we were certified by: (i) the National Civil Aviation Administration of Argentina to perform maintenance, preventive maintenance and alterations, which allows us to expand our GOL Aerotech coverage in the Latin American MRO market; (ii) the CAA Cayman aviation authority, expanding our coverage to perform maintenance on aircraft and components operating under the rules of this authority; and (iii) the FAA to work on CFM56-7 and Leap-1B engines at our engine shop in Confins and repairs in composite materials in the Composite Shop at the same location.
Our engine shop, part of GOL Aerotech, certified by ANAC, EASA, FAA, ANAC Argentina, 2-REG and CAA Cayman for low-complexity services and repairs on CFM56-7 and Leap-1B engines, which power the Boeing 737 Next Generation and 737 MAX aircraft we operate, has the latest infrastructure and tools to conduct maintenance services that were formerly performed by third parties. Among the benefits of insourcing these services are reduced repair and logistics costs and reduced engine off-time and replacement time, as well as an improvement in environmental sustainability as a result of not having to transport aircraft to third-party maintenance facilities. We also have the capacity to expand the services offered by our engine shop.
Fuel
Our fuel costs, which we may not be able to defer significant amounts of or adjust in our ticket prices, were R$2,631.9 million and R$6,288.4 million in 2021 and 2022, representing 23% and 43% of our total operating costs and expenses, respectively. In 2021 and 2022, we purchased nearly all of our fuel from Petrobras Distribuidora. In addition to Petrobras Distribuidora, there are two other fuel suppliers in Brazil. Fuel prices under our contracts were re-set on average 45 days and comprise a variable and a fixed component. The variable component is defined by the refinery and follows international crude oil price fluctuations and the real/U.S. dollar exchange rate. The fixed component is a spread charged by the supplier and is usually a fixed cost per liter during the term of the contract. We operate a tankering program under which we fill the fuel tanks of our aircraft in regions where fuel prices are lower. We also provide our pilots and flight dispatchers with training in fuel management techniques, such as carefully selecting flight altitudes to optimize fuel efficiency.
The following chart summarizes our fuel consumption and costs for the periods indicated:
|
Year ended December 31, | |||
|
2020 |
2021 |
2022 | |
| Fuel liters consumed (in millions) | 722 | 751 | 1,113 |
| Total fuel cost (in millions) | R$2,025.7 | R$2,631.9 | R$6,288.3 |
| Average price per liter | R$2.55 | R$3.50 | R$5.81 |
| % change in price per liter | (8.6)% | 37.2% | 66.0% |
| Percent of total operating costs and expenses | 27.7% | 23.4% | 43.1% |
| ASK/liter consumed | 34.82 | 36.12 | 36.63 |
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We continuously invest in initiatives to reduce fuel consumption, including the following:
| · | Required Navigation Performance (RNP – AR): Precision approaches guided through a satellite navigation system that enables pilots to control aircraft in flight even in the case of low visibility, reducing dependence on air-to-ground navigation and shortening length of flight, which reduces fuel consumption and improves accessibility at airports such as Santos Dumont Airport in Rio de Janeiro. |
| · | Auxiliary Power Unit (APU): This is an auxiliary aircraft engine used to generate power and air conditioning when the main engines are not in use, usually in cases of long stops at airports or overnight use by maintenance. The APU OFF project was based on a consumption reduction opportunities study aimed to allow aircraft to be charged with an external power source (GPU – Ground Power Unit and ACU – Air Conditioning Unit) instead of using the aircraft’s resources, in locations where this service is available. Whenever possible, the APU OFF for aircraft in transit is applied prior to selecting APU INOP aircraft and flights with long ground time, reducing fuel consumption and preserving aircraft resources. |
| · | Aircraft Communication Addressing Reporting System (ACARS): This is a satellite communication system that permits the exchange of data between aircraft and ground communication outlets during flights, and allows for more assertive communication and anticipated shared decision making processes, minimizing route deviations and ensuring operational efficiency. |
| · | Onboard Performance Tool: Boeing’s application enables airline flight crew and dispatchers to run real-time optimized takeoff and landing performance calculations. The benefits that come from this optimization are payload maximization, reduced engine maintenance costs and fuel savings. |
We support the development of sustainable alternatives to fossil fuels for the airline industry, with the view to reducing greenhouse gas emissions and reducing our exposure to oil price uncertainty. We are a member of national and international entities dedicated to promoting environmental sustainability, including the GHG Protocol Brazilian Program, the Brazilian Biofuel and Biokerosene Union (Ubrabio), IATA’s Environmental Committee, the Group of Users of Sustainable Aviation Fuel (Safug), the Brazilian Platform for Renewable Fuel and Biokerosene (PBB) and the Minas Gerais State Biokerosene Platform (PMB). We were the first Brazilian airline to be qualified under the Greenhouse Gas Protocol Gold Standard and have been publishing our greenhouse gas inventory since 2011.
Fuel costs are extremely volatile, as they are subject to global macroeconomic and geopolitical factors that we can neither control nor accurately predict. Because international prices for jet fuel are denominated in U.S. dollars, our fuel costs, though payable in reais, are subject not only to price fluctuations but also to exchange rate fluctuations. For more information on the fuel-related risks we face, see “Item 3. Key Information—D. Risk Factors—Risks Relating to Us and the Brazilian Airline Industry—Substantial fluctuations in fuel costs would harm us.”
We maintain a fuel hedging program, based upon policies which define volume, price