São Paulo, November 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 today its results for the third quarter of 2013. All the information herein is presented in accordance with international Financial Reporting Standards (IFRS), in Brazilian Reais (R$), and comparisons are with the third quarter and the first nine months of 2012, unless otherwise stated.

           Message from Management

GOL posted operating income (EBIT) of R$37 million in 3Q13, a R$238 million improvement over 3Q12, accompanied by a margin of 1.7%, up by 12 percentage points. This increase was achieved despite the 13% average period depreciation of the Real against the Dollar and the highest jet fuel price in the Company’s history.

In the first nine months, revenue grew by R$244 million despite the 9.7% reduction in domestic seat supply, resulting in a positive 1.7% operating margin.  We also reduced operating costs by around R$407 million in the period.

This upturn in revenue was achieved thanks to the Company's strategy of continuously managing PRASK, combining business travelers, who seek flexibility, punctuality and last-minute competitive fares, with passengers who plan their trips well ahead of time, typically for leisure, and look for lower fares.  Consequently, our PRASK grew by 21.1% in 3Q13 and by 14.6% year-to-date.

The leadership in punctuality was maintained in the first nine months. In 2013, we were the company which registered the smallest percentage of delays, just 5.6%. In order to achieve this, we have been continuously improving our passengers’ check-in experience. Remote check-in already accounts for more than 60% of the total at those airports most used by business flyers. We implemented the “fast travel” concept to reduce boarding times and launched a new airport visual identity, aiming to simplify and clarify communications at the check-in counters and in stores. This new identity is already present at the Congonhas, Confins, Santos Dumont and Brasília airports, among others.

In addition, in November we launched a new seat configuration in airplanes, offering the GOL+, a new product exclusive to the Rio-São Paulo shuttle which provides a unique flying experience. With these changes, GOL will have the greatest offer of A-seal seats (an ANAC classification standard) on the shuttle route. All this in order to serve our passengers better every time and become an even more efficient company.

The Company is maintaining its commitment to high liquidity, crucial in times of high macroeconomic volatility. We closed September with a cash position of R$2.9 billion, or 35.1% of LTM net revenue. In 9M13 we also paid debt of around R$346 million, reducing the Company’s financial cost.

Our leverage ratio continues to decline due to the recovery of operating margins and the EBITDAR recomposition. This quarter, the adjusted gross revenue/ LTM EBITDAR ratio fell by 30% over 2Q13. This downward trend should continue until the end of the year, thanks to prospects of a positive operating result in the period.

Our Smiles loyalty program has also become increasingly strong. In September, it launched Clube Smiles and in October it entered into an investment agreement with Netpoints, a loyalty company specializing in retail, with the purpose of increasing the program’s exposure to this segment and fueling its growth.

The ongoing monitoring of macroeconomic and market conditions as well as the speed of the Company’s response and decision-making, have led to an improvement in operating and financial indicators in the quarter. GOL is reaffirming its commitment to obtaining an operating margin of between 1% and 3% in 2013. In 2014, we announce a scenario of stable supply in the Brazilian domestic market, with variation close to 0%.

Once again, we would like to thank our Team of Eagles for their hard work, motivation and commitment.  

Paulo Sérgio Kakinoff 

CEO of GOL Linhas Aéreas Inteligentes S.A.

SMILES

In 3Q13, SMILES S.A. reported a 37.7% growth in net revenue, which came to R$155.9 million, while net income totaled R$63.0 million, 30.5% more than in 2Q13. Other highlights include the 18.6% and 30.3% year-over-year increases  in mileage issue and redemption, respectively. In September, SMILES distributed R$37.1 million in dividends and interest on equity on its first-half results.

At the end of the quarter, SMILES had 215 commercial partners and a 9.5 million member base, 7.3% up year-over-year. In order to boost the program’s growth, on September 17, SMILES launched Clube Smiles, a new benefit club, whereby, through a R$30.00 monthly fee, members receive 1,000 miles/month, with a one-year extension of these miles' expiration date as well as other benefits, such as early access to SMILES promotions. 

In October, SMILES also signed an Investment Agreement for the subscription of 25% of Netpoints’ capital stock, with the option of acquiring control of the company after the close of fiscal year 2018. Netpoints is a loyalty company specializing in retail, and with this operation SMILES' and Netpoints’ clients will be able to exchange miles and points between the two companies. The agreement is designed to increase the programs’ attractiveness and expand their mileage accrual and redemption scope.  

SMILES is an important partner and sales channel and GOL believes in the loyalty program’s potential for making the Company’s product more attractive to its clients.

Smiles – Financial Highlights in the Quarter

Aviation Market: Industry ­ 

                                                     National Civil Aviation Agency (ANAC) figures

In 3Q13, the aviation industry’s supply remained flat over 3Q12, while demand grew by 0.3%. Consequently, the load factor reached 77.5%, a 0.2 percentage point year-over-year upturn. In year-to-date terms, supply declined by 1.2%, while demand grew by 0.9% and the load factor stood at 75.5%, 1.6 percentage points higher than in 9M12. 

Domestic supply fell by 1.6% over 3Q12, while demand declined by 0.6%. The domestic load factor grew by 0.8 percentage points, fueled by the reduction in supply. In 9M13, domestic supply decreased by 4.4% and demand remained flat in relation to 9M12, while the load factor increased by 3.2 percentage points. 

Aviation Market: GOL 

      ( * ) Figures for July 2013 are preliminary; National Civil Aviation Agency (ANAC) figures for other periods.

                             Domestic Market

In line with its capacity adjustment process, in 3Q13 GOL’s domestic supply declined by 7.0% over 3Q12, giving a year-to-date downturn of 9.7%.  

Domestic demand fell by 12.1% in the quarter, mainly as a result of the supply reduction. Consequently, the domestic load factor came to 70.2%, 4.1 percentage points lower than in 3Q12.

International Market

In 3Q13, international market supply moved up by 25.8% over the same period last year, mainly due to the new flights to Santo Domingo, Miami and Orlando launched at the end of 2012. In year-to-date terms, international supply increased by 31.1%. GOL continues focused on assessing potential new markets.

The upturn in supply in 3Q13 contributed to the 18.1% increase in international demand. As a result, the international load factor stood at 64.2% in the quarter, 4.2 percentage points down on 3Q12. The increased representativeness of the flights to Santo Domingo, where around 85% of our seats are available for sale on our 737-800 NG aircraft, reduces our load factor indicator. In accordance with ANAC’s methodology, the load factor is calculated over the aircraft’s total capacity.

              PRASK, RASK and Yield

In 3Q13, yield grew by 28.4% year-over-year, due to the Company’s strategy of attracting more high-value passengers, who prioritize flexibility, punctuality and last-minute competitive fares. As a result, PRASK and RASK moved up by 21.1% and 17.1%, respectively. In the coming months, we expect lower PRASK and yield growth, due to the strong comparative base in the same period last year.

The graph below shows that PRASK growth has outpaced the reduction in domestic supply. 

Annual Variation in PRASK and Domestic ASK*

              (*) Company Figures for July 2013; National Civil Aviation Agency (ANAC) figures for other periods.                                                                                                                     

              Key Operating Indicators

1.                Source: Banco Central;

2.                Bloomberg; 

3.                Fuel expenses/liters consumed

            Income Statement in IFRS (R$ thousand)

¹Interest Income comprises Income from Short-term Investments and Investment Funds

In accordance with CVM Instruction 527, the reconciliation of EBIT and EBITDA is shown in the Operating Resultsection. We also show the reconciliation of EBITDAR, given its importance as a specific aviation industry indicator.

3Q13 Result – Operating Segment (R$ thousand)

For more information on the breakdown by business segment, see Note 29 to the Quarterly Information (ITR).

Net Revenue (R$ million)

Net revenue came to R$2,230.5 million in 3Q13, a 12.2% increase over the R$1,987.3 million reported in 3Q12, fueled by the 21.1% growth in PRASK. It is worth pointing out that this increase was achieved even with the 7% reduction in domestic market supply.

Net revenue per ASK (RASK) grew by 17.1% in the quarter, mostly due to the 21.1% upturn in PRASK, partially offset by the 13.5% decline in ancillary revenue per ASK.  

Net passenger revenue totaled R$2,042.1 million, 16.0% up on the R$1,760.1 million recorded in 3Q12, mainly due to the Company’s focus on continuously improving its product, seeking to attract passengers with higher yields. Net passenger revenue per ASK (PRASK) stood at R$16.41 cents in 3Q13, a 21.1% year-over-year upturn, driven by the 28.4% period increase in yields.

Ancillary revenue came to R$188.4 million, 17.1% down on 3Q12. Ancillary revenue per ASK fell by 13.5%, due to the alteration in the fair value evaluation of miles sales as a result of the separation of SMILES and VRG. This was partially offset by the 7% increase in cargo revenue.

            Operating Expenses (R$ million)

Operating expenses came to R$2,193.5 million in 3Q13, virtually flat in relation to the R$2,188.0 million reported in 3Q12.

Breakdown of Operating Expenses 

Expenses per ASK came to R$17.62 cents, 4.6% up on the R$16.85 cents recorded in 3Q12. Excluding fuel costs, CASK grew by 6.7% year-over-year to R$10.28 cents. The upturn was due to the deterioration of the macroeconomic scenario, including the 13% average depreciation of the Real against the Dollar, which directly impacts 55% of costs. There was also greater pressure on operating costs, given the lower dilution of costs per ASK due to the 7% reduction in domestic supply and the 4.2% decline in total supply.

In the first nine months, GOL recorded cost savings of R$407.2 million, R$169.9 million of which  due to reduced fuel costs and R$237.3 million in other operating costs, demonstrating the Company’s efforts and flexibility to rapidly adapt its cost structure in line with changes in the scenario.

Fuel costs per ASK totaled R$7.34 cents in 3Q13, 1.8% up on 3Q12 due to the 8% year-over-year increase in the average fuel pice. This was partially offset by the 6% improvement in fuel consumption per ASK, in turn due to several energy efficiency measures, including: (i) the reduced use of auxiliary power units (APUs) when aircraft are on the ground, due to their high fuel consumption, and their replacement whenever possible by ground power units (GPUs), whose consumption is up to five times less; and (ii) the Minimum Dispatch Fuel program, in association with GE, which aims to avoid fuel waste by subjecting the behavior of each flight to a statistical analysis, creating historical fuel consumption series and rationalizing future supply based on these analyses and on environmental and meteorological conditions at the time of the flight. In addition, we had an even more efficient fleet than we did a year ago, standardized in the B737-700 and B737-800 Next Generation models with an average age of 7.2 years. In 3Q12, the average age was 7.4 years for the B737-700 and 800s and 21 years for the B737-300s. Currently the B737-300s are grounded and in the process of being sold or returned to the lessors.

Salaries, wages and benefits per ASK came to R$2.59 cents in the quarter, 10.1% less than in the same period last year, primarily due to the rationalization of the workforce, which fell by 11.7%, from 18,356, at the end of 3Q12, to 16,209 at the close of 3Q13. Despite this reduction in the headcount, it is worth noting that the Company has been recording increasing satisfaction indices, measured by our SMS text message surveys. This index moved up from 7.6 on a scale of 1 to 10 in December (when the surveys began) to 8.0 in September, and we remain committed to raising this number even further.

Aircraft leasing costs per ASK stood at R$1.46 cents in 3Q13, 8.2% higher than 3Q12, mainly due to the 13% period depreciation of the Real against the Dollar and the decline in the aircraft utilization rate (from 12.1 block hours/day, in 3Q12, to 11.8) which dilutes less the fixed costs. On the other hand, there was a reduction in the number of aircraft under operational leasing contracts (95, versus 99 in 3Q12).

Sales and marketing expenses per ASK totaled R$1.03 cents, 25.7% up on 3Q12, due to the increase in revenue, which pushed up sales commissions. 

Landing costs per ASK came to R$1.19 cents, an increase of 5.9% over 3Q12, mainly due to the charge of a passenger connection fee of between R$4 and R$8, depending on the airport’s category, since the end of 2012 and now applied in all airports.

      Aircraft and traffic servicing expenses per ASK came to R$1.39 cents, 34.4% up on 3Q12, impacted by the increase in expenses with ramp services, especially due to changes in the route network, inflation and contractual wage adjustments.

      Maintenance, materials and repairs per ASK stood at R$0.93 cents, 43.6% higher than in 3Q12, essentially due to the removal of 12 engines, versus 10 in the same period last year, and the depreciation of the Real against the Dollar.  

      Depreciation and amortization per ASK totaled R$1.23 cents in 3Q13, a 32.1% increase year-over-year, chiefly due to improvements associated with major engine maintenance work established in the contracts, and higher depreciation of the estimated cost of reconfiguring aircraft when they are returned. Additionally, one aircraft was added to the fleet under the finance lease regime, totaling 46, versus 45 in 3Q12.

      Other operating expenses per ASK came to R$0.45 cents, 45.9% down on 3Q12, primarily due to R$42.4 million gains from sale leaseback operations involving six aircraft in 3Q13. Additionally, there was the sub-leasing of five aircraft to Transavia to operate in the European summer high season, which were returned in October.

  Operating Result

GOL recorded consolidated operating income (EBIT) of R$37.0 million in 3Q13, growth of R$238 over 3Q12, with an operating margin of 1.7%, up by 12 percentage points. This result was due to the Company’s efforts to maximize revenue, focusing on continuously improving our product, high value passengers and controlling manageable costs even in the midst of a challenging scenario for the entire industry, due to pressure on the exchange rate, fuel prices and the low performance of the Brazilian economy.

Year-to-date operating income came to R$103.1 million, with a margin of 1.7%, within the Company’s annual operating margin guidance of between 1% and 3%.

In accordance with CVM Instruction 527, the Company presents the reconciliation of EBIT and EBITDA, whereby: EBIT = net loss (income) plus income and social contribution taxes and the net financial result; and EBITDA = net loss (income) plus income and social contribution taxes, the net financial result, and depreciation and amortization expenses.

We also show the reconciliation of EBITDAR, given its importance as a specific aviation industry indicator, whereby: EBITDAR = net income (loss) plus income and social contribution taxes, the net financial result, depreciation and amortization expenses, and aircraft operating lease expenses.

Hedge Result

The Company makes use of hedge accounting to record some of its derivative instruments. In 3Q13, the Company recorded a net loss from hedge operations of R$40.9 million.

*OCI (Other Comprehensive Income) or Statement of Comprehensive Income is a transitional account where positive and negative fair value adjustments of future operations are booked, designated as effective for hedging cash flow. The purpose is to state income as close to the Company’s reality as possible. As the results from operations occur in their respective accrual periods, they are incorporated into the Company's income. GOL records the fair value of hedges due in future periods whose aim is to protect cash flow.

In regard to hedging cash flow, the Company and its subsidiaries protect the variation in future revenue or expenses arising from changes in interest rates or fuel prices and book the effective variations in the fair value of the derivative financial instruments under shareholders’ equity until the revenue or expense that is the object of the hedge is recognized.

The Company and its subsidiaries estimate effectiveness based on statistical correlation methods and on the proportion between the gains and losses in the derivative instruments utilized as a hedge and the variation in the hedged costs and expenses.

The instruments arre condidered effective when the variation in the value of the derivatives offset between 80% and 125% of the impact of the price variation on the hedged cost or expense.

The balances of the effective variations in the fair value of the derivatives designated as cash flow hedges are reclassified from shareholders’ equity to the income statement in the period in which the cost or expense that is the object of the hedge impacts the result. The results of cash flow hedges that proved effective in offsetting the variation in hedged expenses are recognized in reducing accounts of the hedged expenses, reducing or increasing the operating cost, and the results of the non-effective hedges are recognized as financial revenue or expenses in the period. The amount related to hedge operations was entirely recognized in the financial result (for more details, see the Financial Result section).

Fuel: fuel consumption hedge transactions, which are effected through derivative contracts involving crude oil and its by-products (WTI, Brent and heating oil) generated gains of R$13.4 million in 3Q13, recognized in the financial result. The Company’s fuel hedge position remained stable in relation to 2Q13 and at the end of the quarter, 20% of its exposure in the next three months was protected.

Foreign Exchange: foreign exchange hedge transactions designed to protect the Company’s cash flow generated losses of R$52.4 million, recognized in the financial result. Given the period volatility of the  exchange rate, GOL increased its FX hedge protection, with 70% of exposure in the next three months  being protected (versus 37% in 2Q13).

Interest: swap transactions to protect cash flow from aircraft leasing against an increase in interest rates generated losses of R$1.9 million in the financial result. The Company increased its hedged position from US$647 million in 2Q13 to US$1,431 million at the end of September, considering the nominal value.

The table below shows the nominal value of derivatives contracted as a hedge against future expenses, the derivatives’ average contracted rate and the percentages of hedged exposure on an accrual basis on September 30, 2013:

*Weighted average of derivative strike prices.

** On 09/30/2013, the exchange rate was R$2.2300 / US$1.00.

All the financial instruments used for hedging purposes this quarter consisted of Brent and WTI options and collars, Libor interest rate swaps and Dollar futures and options. GOL focuses on simplified derivative structures, aiming to reduce its operating risks and ensure as much compliance as possible with the targets established in its annual budget.

Financial Result

The 3Q13 net financial result recorded an expense of R$187 million, 140.3% higher than in 3Q12, primarily impacted by the hedge result, which was an expense of R$40.9 million, versus revenue of R$43.8 million in the same period last year.

            ¹Interest Income comprises Income from Short-term Investments and Investment Funds

Interest expenses totaled R$136.2 million, 21.1% up on 3Q12, mostly due to the 10% year-over-year end-of-period depreciation of the Real against the Dollar, which had an adverse impact on the Company’s Dollar-denominated debt (76% of the total in 3Q13, versus 70% in 3Q12).

The exchange variation recorded an increase of R$18.5 million in the 12-month comparison, mainly due to the upturn in foreign-currency-denominated debt through the Senior Notes issue in February 2013 maturing in 2023.

Financial revenue totaled R$77.7 million, 263.2% up on the R$21.4 million recorded in 3Q12, primarily due to the 56% period increase in the cash position and the increase in the benchmark interest rate (SELIC), given that a significant part of the Company’s cash investments are pegged to the CDI interbank rate.

Other financial expenses came to R$62.5 million, 159.3% more than the R$24.1 million expense reported in 3Q12, chiefly due to the loss in the fair value of the SMILES stock purchase option entered into with General Atlantic.

Income Taxes

Income tax totaled R$47.3 million, 52.6% up on the R$31.0 million recorded in 3Q12, primarily due to the increase in current tax due to the impact of income and social contribution taxes on the taxable income of SMILES S.A. The variation in deferred tax was primarily due to the realization of miles constituted prior to the separation of SMILES S.A.’s activities (VRG legacy).

            Net Loss

GOL posted a 3Q13 net loss of R$197.0 million, with a negative net margin of 8.8%, a R$112 million, or 7 percentage point improvement over the R$309.4 million net loss and 15.6% negative net margin reported in 3Q12.

Balance Sheet: Liquidity

GOL recorded a new record in terms of total cash, financial investments and short and long-term restricted cash, which recorded R$2,930.7 million at the end of 3Q13. This amount represents an increase of 56% over 3Q12 and 6% more than in 2Q13.

In 3Q13, total cash represented 35.1% of LTM net revenue and 6.5x obligations due in the next 12 months (5.8x in 2Q13). The Company remains fully committed to maintaining high liquidity and gradually reducing its leverage.

The year-over-year increase was due to the Company’s improved operating result, as well as the proceeds from the SMILES IPO and the agreement involving the advanced sale of SMILES miles to financial institutions in May 2013, totaling approximately R$1.5 billion.  

Short-term receivables consist mostly of ticket sales via credit card and accounts receivable from travel agencies and cargo transportation. At the end of 3Q13, these receivables totaled R$368.9 million, 4.4% up on the R$353.4 million recorded in 2Q13.

Balance Sheet: Indebtedness

On September 30, 2013, the Company’s total loans and financings came to R$5,504.9 million (including financial leasing), 4.7% up on 3Q12, primarily due to the increased exposure of the Company’s total Dollar-denominated debt (from 70% in 3Q12 to 76% in 3Q13), in turn due to: (i) the Senior Notes issue maturing in 2023; (ii) financing guaranteed by the U.S. Exim Bank for engine maintenance; and (iii) the entry of an aircraft under a finance lease contract. This increase was partially compensated by the amortization of R$346 million in debt year-to-date. In comparison with 2Q13, there was a reduction of 1.6%, chiefly due to the payment of financing lines in the period.