These are heady times for Richard Lark, CFO of Brazil’s GOL Linhas Aereas Inteligentes S.A., which is shaping up as the airline equivalent of The Little Engine That Could. A former investment banker, Lark, 41, is presiding over the company’s transformation from a local, low-cost carrier into an international power following its purchase of the much larger Varig Brazilian Airlines last April.
That wing-spreading came three years after GOL listed its stock simultaneously on the Brazil and New York stock exchanges and became one of the first foreign-listed companies to complete a Sarbanes-Oxley section 404 certification. Now GOL, with a 40 percent market share of the air traffic within, into, and out of Brazil, is nipping at the heels of TAM Airlines, whose lead has dwindled to just a few points. In fact, GOL’s market capitalization, about $5.4 billion, is larger than TAM’s. CFO.com caught up with Lark to get his take on growth, listing on a foreign exchange, Sarbox, accounting standards and more.
What metrics do the CFO of a low-cost airline watch every day?
We’re most focused on load factor, which is the percentage of seats filled; yield, or revenue per seat kilometer; and cash flow. We also look at the external variables that affect our costs, such as oil prices, exchange rates, and interest rates. On a monthly basis our main focus is cost per seat kilometer and what goes into that. In Brazil the majority of the operating costs of our business, almost 70 percent, are derived from the aircraft — fuel, leasing, maintenance. And since aircraft are used for a long period of time, what’s happening in our cost structure today is a function of decisions made long ago. In the United States, labor is a much bigger component of the cost structure.
How else do you differ from U.S. airlines?
We also have more pricing power. What that means is that in Brazil we have a maximum 10 million consumers of air travel, and 60 percent are business travelers, so demand is relatively inelastic. That gives us a fair amount of ability to do yield management on a daily basis to maximize revenues. In the U.S. market you have a much smaller business component of travel and a much larger leisure component — about 70 percent — and airlines have a much harder time adjusting fares on a daily basis. So we probably spend a lot more time focused on the revenue side of the equation.
GOL’s Richard Lark is taking the low-cost airline to new heights following the company’s acquisition of Brazil’s former state-owned carrier Varig, and its foray into Europe, and soon the U.S.
It seems that the price of oil has gone up about 40 percent at the same time that the real, Brazil’s currency, increased in value. Does that mean you’re not paying a lot more for oil?