August 22, 2002 In Brazil, Gol Succeeds in the No-Frills Path By TONY SMITH SÃO PAULO, Brazil, Aug. 21 — After a friendly preflight greeting in Portuguese, flight attendants for Gol, a domestic airline that hauls Brazilians across their vast country, announce: "Hi, folks! Welcome to Gol, the really youngest fleet in Brazil." The tropical imitation of a Southern drawl may be jarring. But for anyone who has ever flown Southwest Airlines, that "Hi folks!" is a sure sign of where Gol, Brazil's first budget airline, is coming from. "Southwest was our main inspiration, but we made a benchmark from them, EasyJet, JetBlue and Ryanair," said Constantino de Oliveira Jr., 34, the chairman and chief executive of Gol. Following the path of these American and Irish upstarts, which, through cheap pricing and smart routing, have managed to buck the post-Sept. 11 trend of fewer passengers and lower profits, Gol has grown into Brazil's third-largest airline in less than two years. Varig, the country's biggest airline, is facing its worst crisis in its 75-year history, and the No. 2, TAM Linhas Aéreas, although financially healthier, is still cutting back on an ambitious expansion plan. Gol, which in Portuguese means "goal," as in soccer, is privately owned. It carried its five millionth passenger this month and is set to take delivery of four more Boeing 737-800's next month. That will give the airline a fleet of 19 planes, as its staff increases to 1,700 and its destinations to 23 cities. In the first half of this year, Gol was Brazil's most punctual airline and, with an average 76 percent occupancy rate in June, the most efficient, according to data from the country's Civil Aviation Department. Despite market turmoil that has sent Brazil's currency and bond prices into a spin and has chief executives of several other airlines adopting crash positions, Mr. Oliveira — known universally as Junior — wants to have 18 percent of the domestic market and to break even by the end of the year. For 2001, its debut year, Gol reported a $2 million loss. "Budget airlines are ideal for a developing country like Brazil — we're talking a very price-sensitive market here," he said. Few countries, even developed ones, can match Brazil's population, size and disposable income in terms of growth potential for a no-frills domestic airline. Carlos Albano, an analyst at Unibanco, a major Brazilian bank, said Gol's lean structure, lack of debt and unusual sales pitch put it "in a privileged position." "Although it's still too early to say whether it will survive long term, Gol has certainly been a success story so far," he added. "Revolution might be too strong a word, but Gol has definitely shaken up the market." Before Gol, Brazilians relied on four major private airlines that were frequently run inefficiently in a highly regulated market that stifled true competition. With liberalization in the late 1990's, a flock of small charter airlines took to the air, but they were denied full status as scheduled airlines and mainly served tourist destinations on Brazil's northeastern coast. Mr. Oliveira, who is a pilot and a 1992 South American Formula Three car racing champion, brings his own unpretentious style to work. Unlike most top São Paulo executives, he has no chauffeur and no armored car; he drives to his minimalist office at Gol's modest headquarters in São Paulo in his VW Golf. Mr. Oliveira cut his business teeth managing Brazil's biggest bus transport empire, Grupo Aurea, founded by his father. He recalls as a teenager hearing his father dream out loud about his bus fleet sprouting wings and becoming an airline with prices so low that any Brazilian could afford to fly. "It definitely helped me, coming from the bus business," he said. "The cost structures are very similar: your variables are fuel, vehicles, spare parts, ticketing, network." He added with a wry smile, "In the bus transport business, you have to fight for every cent." As Gol's first Boeings took off in January 2001, executives at Brazil's traditional airlines — Varig, TAM, VASP and Transbrasil — as well as many aviation analysts predicted that the newcomer would not stay aloft for long. Brazilian carriers must pay airport taxes almost double those in the United States, though most must deal with strong labor unions. Aircraft leasing and fuel costs are paid in dollars, even though tickets are sold in reais, a currency that has lost nearly a third of its value this year. Critics derided Mr. Oliveira's contention that Gol would make ends meet by harnessing Brazil's boom in telecommunications, Internet and credit card use and by slashing costs through the elimination of hot meals and printed tickets. Now, Gol's competitors are the ones in trouble. A bitter price war spurred by Gol's aggressive structure deeply cut revenues that were already under pressure from a drop in international air travel after the Sept. 11 attacks in the United States, making it harder for the traditional airlines to pay their huge debts, accrued over years of economic instability in Brazil. Transbrasil is broke and has not flown for nine months. TAM has put international expansion plans on hold. Varig, once the jewel in the crown of Brazilian aviation and a partner of United Airlines and Lufthansa of Germany in the Star Alliance, is overwhelmed with $900 million debt and just named a new chief executive. VASP made a costly overextension into the international market and is only now recovering; Gol overtook it in passenger terms in March. "Yes, times are hard, but for a business model like ours, they are much less hard than for our competitors," Mr. Oliveira said. "In times of crisis, people keep a much closer eye on their money." Like the tail wagging the dog, Gol's tiny fleet forced the larger airlines' fares on competitive routes down by about 40 percent, though they are still generally higher than Gol's. Sometimes, flying Gol can be cheaper than buying a bus ticket. In its first year, 4 percent of the airline's 2.5 million passengers were first-time fliers, and this year Gol expects that figure to reach 9 percent. In a country where roads are bad and distances huge and many people earn less than the supposed minimum guaranteed monthly wage of $65, "Gol is increasingly seen as a politically correct airline," said Tarcísio Gargioni, the vice president for marketing and services at the company. "We are helping a lot of simple people realize their dreams." No-frills airlines might be commonplace in developed nations, but Gol's cheap but cheerful image has been a breath of fresh air in Brazil. And even though it has no business class or first class, more and more executives are flying Gol. To cut costs, boarding passes are printed at the airport in exchange for a reservation code instead of printed tickets. Bookings are mainly made by telephone or on the Internet and paid for immediately by credit card or by check within three days, so Gol spends a fraction of the industry's 24 percent average on travel agents' commissions. By substituting granola bars for what Mr. Oliveira disparagingly calls "those warmed-up omelets" served by traditional airlines, Gol's planes are loaded just once a day for as many as 14 trips. Instead of a separate cleaning crew, on-board employees, dressed in a uniform of T-shirts and slacks, tidy the cabin at each stop. "Nuts!," the book by Kevin and Jackie Freiberg about Southwest's founder, Herbert D. Kelleher, is required reading for flight attendant trainees. All these efforts make a Gol plane's average time on the ground 20 minutes, 10 minutes less than competitors, Mr. Oliveira said. Then, too, there is that fleet of sophisticated Boeings. "Had we bought old planes, it would have left the company open to claims by competitors that we lacked safety and technology," Mr. Oliveira said. "So we opted for new planes, the most modern, the most fuel efficient. You have to pay higher leasing, but you save on fuel and maintenance, and your image with the public is untouchable." _________________________________________________________________ Chat with friends online, try MSN Messenger: http://messenger.msn.com