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GOL or RYAAY: flying proletarians and low cost airlines. February 27, 2006

Posted by deminvest in investment, Single stocks, Social investing, stocks.

As usual we, the people, like to invest in companies we understand. There was a time when only the rich where flying. Now we must fly too. Thanks to low cost airlines, flying is now the cheapest way to travel long distance.

Let’s look into high growth low cost airlines. Major USA low cost carrier JetBlue Airways Corp has recently posted the first losses, so we can’t really consider it a high growth company. GOL Linhas Aéreas and Ryanair seem interesting growth stocks.

As usual, let’s go to Yahoo’s key data sheet for GOL and RYAAY we see that, surprisingly, the companies have comparable size: GOL has revenue of 1.16B and Ryan Air has revenue: 1.96B. Pretty shocking for our European friends to find out that local Brazilian GOL, serving 39 destinations in Brazil and 1 destination in Argentina , is not much smaller than Ryanair, the great phenomenon of European Airlines, which is kicking butts of glorious national European airlines, sending an old glories like Swiss Air belly up.

Well I feel that European skies, crowded with competition, have less room than empty South American skies. So one point for GOL which could expand in fast growing Brazil (part of the high growth BRIC world) and also into nearby South American countries.

Then we look at how expensive those stocks are. :

GOL: Trailing P/E: 28.68 Forward P/E (31-Dec-06) 18.16 Price/Sales: 5.51
RYAAY: Trailing P/E: 21.33 Forward P/E ( 31-Mar-07) 19.87 Price/Sales: 4.06

(the lowest the numbers above, the cheapest the company is)

GOL seems a bit more expensive than RYAAY right now, but a bit cheaper if it meets forecasts.

Ryanair has a much small risk connected to the country. Europe has much more stability than Brazil for sure. But what will make me buy GOL on first March (did I ever tell you I buy 1000 $ worth of stock every Month?) is the dividend yield of 0.40% (we, modern lazy proletarians, like the idea of money flowing to us without work). RYAAY does not give any dividend (what a shame!).

Also the debt situation of GOL is lovely: hardly any debt!

Regarding the debt situation of Ryan Air, there is something quite strange which I don’t like. They seem to have a total debt of 1.82B and at the same time cash for 1.87B. So you may say that it is very nice to have more cash than debt…. but the suspicious proletarian typing is wondering… Why do they pay interest on that debt if they really have all that cash in their pocket? It does not make much sense to me, eve though they would probably explain to that debt is connected to airplanes leasing or similar stuff… Still they could pay airplanes cash, get better deals and have less debt…


1. Dude - March 1, 2006

Why didn’t you include Copa in your analysis? Compares favorably to GOL on every metric you mentioned.

2. deminvest - March 2, 2006

Thank you for your interesting suggestion. I did not include Copa for several reasons:

Fisrt of all Copa Airlines (COP) is a little bit more similar to a normal airline than to a low cost airline.

Second (and worse from my point of view) it does not pay a dividend. I don’t trust companies which do not pay dividends. They make me more suspicious about about their earning statesments. I wonder: if they can’t even pay out a little cash in dividends, are we sure they are really make those earnings they state?

Third it is very small. It is only half the size of GOL

Fourth it does not operate in a fast growing country like Brazil.

3. Dude - March 2, 2006

Actually ticker for Copa is CPA.

They do anticipate paying a dividend, although it’s likely to be fairly negligible.

It has a small market cap, yes. But, not much different than ALK or AAI. I’m not sure I understand what you mean by more similar to a normal airline than a low cost one. I think those are mostly arbitrary distinctions. Except they do use a hub and spoke traffic arrangement.

If you believe that Brazil’s growth is a function of growth throughout South America, than Copa is equally situated. They certainly benefit from the central location of Panama, and the good weather there. I personally believe that air travel throughout South and Central America is on the rise, and Copa well placed to take advantage. Also, if they can integrate the Colombian carrier they bought last year, they will have a fine regional exposure as well.

ps. I was wrong on one thing. Copa does not compare favorably to Gol on debt, although Copa’s debt is certainly within the realm of manageable.

4. deminvest - March 3, 2006

hey Dude, thanks for correcting my mistake on Copa’s ticker. You’re right it is CPA.

You’re also right in guessing that Brazil is such a large country, that it will pull the whole South American Economy. Still in my opinion it is better to invest into the large leading economy than into satellites following.

Also Ryan family, founders of Europe’s biggest low-cost airline, has teamed up with one of Mexico’s largest bus companies to launch a new, no-frills air carrier http://yahoo.reuters.com/news/articlehybrid.aspx?type=comktNews&storyid=urn:newsml:reuters.com:20060227:MTFH19265_2006-02-27_22-22-51_N27409456&rpc=44

That could pose a competition threat to Copa. Gol is strong in its huge growing country and developing low cost routes to nearby countries.

So I decide GOL because:

1) growing faster
2) leader in a leading country
3) Serious dividend vs negligible dividend payout
4) No debts vs debt that could hurt Copa if it needs to compete on fares.

5. Gabrielle Pisani - August 13, 2006

This is the best article I have read re: Gol! I appreciated the concise to the point comparisons between the different airlines.
My investment choice of GOL was an easy choice after reading
your informative article.
Thank You,
Gabrielle P. (investor)

6. deminvest - August 14, 2006

Gabrielle, good luck with GOL! I hope we’ll not have to regret our Brazilian choice 🙂

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