A Budget Airline Soars in Brazil

SAO PAULO, Brazil -- In a country where domestic air travel meant free whiskey in coach class only a few years ago, an airline born from a bus company is attracting travelers in droves to flights where such frills are nonexistent.

The low-cost phenomenon launched by Gol even extends to the company's executive domain -- a squat, four-story building with no elevators where visitors trudge up the stairs to meet with the airline's management team.

Four years after scrambling to get six planes flying in time to profit from Brazil's busy summer travel season, Gol has carried 23 million passengers in Latin America's most populous country and is spreading its wings abroad.

Gol, which took to the skies in 2001 serving just seven Brazilian cities, now has nearly 30 new Boeing 737s traveling to 38 destinations across the country.

The family-controlled company introduced Brazilians to online sales, ticketless travel and cold sandwiches and soft drinks instead of hot meals and booze. Forget about first class, business class or frequent flier miles: They are not offered.

And the airline is spreading its wings abroad, starting its first international route to Argentina in December and pledging to start service to Bolivia by June. Analysts predict the carrier's next stops could be Colombia, Ecuador, Paraguay, Peru or Uruguay.

Growth for Gol, which translates as "Goal" in both Portuguese and Spanish in soccer-crazed Latin America, has come with plenty of challenges. The company got off the ground with a big marketing splash just nine months before the Sept. 11 travel drop-off.

Then Brazil's aviation industry was hit in 2002 by a huge devaluation of the Brazilian currency that pushed other domestic carriers to the verge of bankruptcy because airline costs like fuel and aircraft-leasing payments are linked to the dollar.

South America's largest economy went on to flirt with recession in 2003 amid sky-high interest rates.

But Gol, whose full name is Gol Linhas Aereas Inteligentes, managed to steadily increase its Brazilian market share by offering passengers lower fares than its rivals during the bad economic times.

"We thought people would be more price sensitive in those environments," chief executive Constantino Oliveira said in an interview. "So we converted the crises into opportunities for growth."

Gol says its fares are typically 20 percent less than its competition. In keeping with Gol's mantra to do everything on the cheap, the carrier outsources phone reservation call centers and uses one type of plane to save on maintenance and pilot training costs. Children get toy planes as presents -- but the planes, made of paper, look like bookmarks.

Cost-cutting runs in Oliveira's blood, courtesy of his father, a former long-haul trucker who started a bus company in the 1950s that became one of the country's biggest.

The younger Oliveira, who became a licensed pilot at age 17 and rose through the ranks at the bus company before starting Gol, said his father always wanted to offer alternative low-cost air travel. But he held back because of the country's tight regulation over the industry. The regulatory climate eased in the late 1990s just as Internet use mushroomed in Brazil. And one of the country's major airlines, Vasp, started laying off workers and slashing routes, creating a ready labor pool of experienced airline executives and pilots.

The Oliveiras sensed the timing was right in the summer of 2000, snagged talent from Vasp and launched the airline seven months later with an initial investment estimated by analysts at $12 million.

Focusing on business travelers and Brazilians who had never flown before, Gol's domestic market share grew from 12 percent in 2002 to 24 percent by 2004, putting it in the No. 3 position -- behind Varig and Tam and far ahead of Vasp, whose market share declined to less than 1 percent by the end of last year.

Investors have taken notice, snapping up shares during Gol's initial public offering last summer in Sao Paulo and New York, which raised $280 million. The company's American depository shares are up 60 percent since the IPO, amid analyst predictions they could go 20 percent higher this year.

"We view Gol as one of the best long-term investment stories in the airline universe today," Morgan Stanley analyst William Greene said in a note to investors.