GOL Segregates Smiles - Analyst Blog

GOL Linhas Aéreas Inteligentes S.A. (GOL) announced its plans to segregate the company’s Smiles Program. The program was first initiated to provide the GOL customers with greater advantage of using the company’s services. The membership of the program entitles the members to accrue mileage points which they can redeem to avail of certain discounts on the flights.

In October 2012, the Smiles program also launched a new platform, Smiles Shopping, through which the members can redeem their mileage points not only to purchase tickets, but also to introduce around 300,000 new products and services from various partners.

Apart from its flying partners such as Delta, Air France, KLM and Qatar, the company also has various shopping partners like Natura, Walmart, Pão de Açúcar, C&A, Editora Abril, Marisa, Chilli Beans, Kinoplex, Compra Fácil, Tok & Stok, AACD, Telha Norte, Games to Go, Bebê Store, Netshoes, Assaí and Polishop.

The program, currently managed by the subsidiary, VRG Linhas Aéreas S.A. ("VRG"), will be conducted by Smiles S.A, a new formed company operated by GOL. At the end of third quarter 2012, the program had approximately 8.9 million members.

As announced during the third quarter 2012 earning release, the company is exploring the possibility of an Initial Public Offering (IPO) of Smiles. However, it has not been predicted as yet the estimated time needed for it. Also, it cannot be assumed that the IPO will eventually be done, as it will depend on factors like the domestic and international capital market conditions as well as other formalities regarding an IPO. Moreover, the company will also have to register Smiles with the Brazilian Securities and Exchange Commission (CVM).

We currently have a Neutral recommendation on GOL. The stock also bears a Zacks #3 (Hold) Rank. The company’s prime competitors Copa Holdings SA (CPA) currently has a Zacks #2 (Buy) Rank and LAN Airlines S.A (LFL) has a Zacks #4 (Sell) Rank.