GOL: Operating Margin Increases by 18 p.p. in 2Q13 Year over Year

São Paulo, August 12, 2013 – GOL Linhas Aéreas Inteligentes S.A. (BM&FBOVESPA: GOLL4 and NYSE: GOL), (S&P: B, Fitch: B-, Moody’s: B3), the largest low-cost and low-fare airline in Latin America, announces its results for the second quarter of 2013 (2Q13). All the information herein is presented in accordance with International Financial Reporting Standards (IFRS) and in Brazilian Reais (R$), and comparisons are with the second quarter (2Q12) and first half of 2012 (1H12), unless otherwise stated.

Highlights
GOL recorded an operating loss (EBIT) of R$35 million in 2Q13 resulting in a negative margin of 1.8%, an improvement of R$320 million and 18 percentage points over 2Q12. In the first half, GOL recorded a positive operating margin of 1.7%, in line with the margin projected for 2013, of between 1% and 3%.

PRASK (passenger revenue per available seat-kilometer) totaled R$14.14 cents in 2Q13, 10.5% up on 2Q12. This performance fueled the 7.5% year- over-year upturn in RASK (operating revenue per available seat-kilometer), which came to R$15.72 cents in 2Q13. The continuous monthly increase in PRASK since April 2012 reflects the Company’s efforts in optimizing its offer and maximizing the profitability of its routes.

CASK (operating cost per available seat-kilometer) totaled R$16.01 cents in the second quarter, 8.4% down on the same period last year. Fuel costs per ASK fell by 8.8%, primarily due to the 3.4% decline in the per-liter fuel price and the use of a more fuel-efficient fleet. CASK ex-fuel fell by 8% in the same period, chiefly impacted by the reduction in personnel costs.

SMILES’ IPO during the quarter meant that the Company ended 2Q13 with its biggest ever quarterly cash position (cash, cash equivalents, financial investments and short and long-term restricted cash), totaling R$2.8 billion, equivalent to 34% of net revenue of the last 12 months (LTM).

SMILES S.A. posted an ex-breakage operating margin of 27.5%, 5.5 percentage points up on 1Q13. The customer base grew by 7% in the last 12 months, reaching 9.3 million participants.

Continuing with its gradual deleveraging process, the Company closed the second quarter with a leverage ratio, represented by the adjusted gross debt/LTM EBITDAR ratio, of 15.5x, a 44% improvement over 1Q13, thanks to the gradual upturn in operating margins (LTM EBITDAR of R$654 million in 2Q13, versus R$357 million in 1Q13) and around R$318 million debt amortizations in the first-half, including pre payments. Net debt registered a decrease of around R$900 million between 1Q13 and 2Q13, while EBITDAR totaled R$602 million in the first half, a 192.8% increase compared to the same period in 2012.

Given high exchange rate volatility and the slowing of Brazilian GDP growth, GOL announced in June 2013 a further reduction in 2013 domestic supply of around 9%, versus the previous estimate of 7%.

In July 2013, GOL strengthened its airline partnerships with the initiation of ticket sales for Delta’s international flights to New York and Detroit through its sales channels. Also in July, the Company requested authorization from the Brazilian and Italian governments to implement a codeshare agreement with Alitalia.

Message from Management
In 2Q13, the Company recorded an improvement of R$320 million and registered an operating loss (EBIT) of R$35 million. The operating margin was negative by 1.8%, up by 18 percentage points over 2Q12, in what is the industry’s seasonally weakest quarter. As a result, GOL reported a positive operating margin of 1.7% in the first half.

Since April of last year, GOL has adapted its capacity to the new cost reality in the aviation industry, reducing its domestic route network while adjusting its cost structure and operational capacity.

The strategy was implemented without losing focus on the client and the Company’s commitment to expanding products and services. Corporate clients are the object of special attention for GOL. According to Abracorp (the Brazilian travel agents’ association), GOL’s share of the domestic business trip market grew by 3 percentage points in the last 12 months, closing the first half at 33.5%.

The remote check-in ratio has also been recording a continuous improvement, reaching an average 55% in the first half of the year, helping GOL to maintain the punctuality lead in the domestic market year-to-date. In the country’s leading airports, the ratio was higher than 80%.

The development of partnerships has also played an important role in GOL’s strategy of increasing its international presence. The codeshare agreement with Delta was expanded and all destinations covered by Delta in Brazil will be connected to GOL’s route network and available for purchase on its sales channels by the end of August. The Company also announced the first step in the implementation of a codeshare agreement with the Italian airline, Alitalia, which will give GOL and Alitalia clients improved access to flights between Brazil and Europe.

Thanks to these measures, among others, our services became more attractive to passengers willing to pay for higher yields, reflected in the 10.5% year-to-date increase in PRASK and in the clear benefits for members of the SMILES program.

In line with its commitment to maintaining high liquidity, GOL accessed the capital market and launched the IPO of SMILES S.A. in the end of April. With this, the Company’s total cash position reached R$2.8 billion at the close of the quarter, equivalent to 34% of LTM net revenue and the Company’s highest ever figure. GOL also amortized debt of around R$318 million in the first half, thereby reducing its financial costs.

Thanks to the improved operating margins and the consequent EBITDAR recomposition, GOL continued its process of gradual deleveraging and strengthening the balance sheet. GOL closed 2Q13 with a 44% improvement in its financial leverage ratio over the previous three months and this downward trajectory should continue until the end of the year due to prospects of a positive annual operating result.

Given the recent shift in the macroeconomic scenario, the Company has increased its projected annual reduction in domestic supply from 7% to 9% in June. In the second half of the year, it will have to cope with record jet fuel prices and a new cost hike due to the depreciation of the Real, as well as prospects of a reduction in Brazil’s annual GDP growth estimates. The scenario is even more challenging.

The various changes in scenarios faced by the industry in recent years have made us strengthen our fundamentals, maintaining a strong cash position, appropriate debt profile, efficient cost structure and a focus on the profitability of our flights, always seeking to serve our clients in the safest and most intelligent manner possible. It is for these reasons that we have maintained our beginning-of-year annual operating margin guidance at between 1% and 3%.

GOL thanks its Team of Eagles for their hard work, motivation and commitment in this especially challenging period for the airline industry.

Paulo Sérgio Kakinoff
CEO of GOL Linhas Aéreas Inteligentes S.A.