Brazil’s GOL Posts another Loss as Varig Weighs In

Brazilian airline GOL reported its second straight quarterly loss on Wednesday as problems with its Varig unit and high fuel prices offset growing passenger traffic.

The carrier posted a net loss of BRR3.5 million in the first quarter, compared with a profit of BRR116.6 million in the year-earlier period and a loss of BRR24.2 million in the fourth quarter.

GOL, the second-ranked airline in Brazil after TAM, also reduced its year-end fleet size forecast to 108 from 112. It plans to return older aircraft and gradually replace them with more next-generation jets from the Boeing 737 family, which are more fuel efficient.

GOL’s bottom line has suffered since it bought Brazil’s former flagship airline Varig last year. Varig was on the verge of collapse after years of mismanagement. GOL is currently trying to overhaul Varig and bring its cost structure down.

Excluding Varig, which canceled three international routes in March and has plans to scrap two more because of rising fuel costs, GOL said it would have made a net profit of BRR200.1 million in the first quarter.

GOL plans to phase out Varig’s remaining routes to Europe and Mexico in the coming months and focus instead on Brazil and South America, where it thinks Varig is better positioned to profit from a fast-growing aviation market.

Unlike carriers in the United States, most of Latin America’s major airlines have managed to cushion the impact of rising fuel costs with surging passenger traffic as robust economic growth allows more people to fly.

Domestic air travel expanded 11.2 percent in the first quarter in Brazil, more than double the pace of the country’s economic growth, and is expected keep rising in double digits.