November 14, 2012 / 3:35 PM / in 5 years

UPDATE 1-Brazil's Gol separates loyalty program before IPO decision

* Brazil airline creates separate structure for Smiles unit

* Decision on potential Smiles IPO slated for April or May

* Operating loss widened in third quarter from year ago

By Brad Haynes and Asher Levine

SAO PAULO, Nov 14 (Reuters) - Brazilian airline Gol Linhas Aereas will structure its Smiles customer loyalty program as a separate business unit by the end of the year and decide on a possible public listing of the division in April or May, executives said on Wednesday.

An initial public offering of the loyalty program would provide a welcome burst of new capital for Gol as it struggles to reverse operating losses this year due to softer domestic demand and high fuel prices.

“We expect to discuss the possible capitalization of Smiles,” Chief Executive Paulo Kakinoff told analysts on a conference call. “We estimate between April and May we’ll be ready to bring that discussion to the board and evaluate the market prospects for an IPO, which would be the most interesting strategy for the company at the moment.”

Gol’s shares rose 2.5 percent to 10.35 reais, reverting early losses after the company posted its fifth quarterly loss in a year and a half.

The airline lost a net 309 million reais ($150 million) in the third quarter due to rising fuel costs and airport fees, compared with a 517 million-reais loss a year earlier.

The loss before interest and taxes widened to 201 million reais from 75 million reais a year ago, according to a securities filing late on Tuesday.

Last quarter, Gol said it expected a 2012 loss before interest and taxes, scrapping a prior forecast for a profit equal to between 4 percent and 7 percent of revenue.

A 26 percent increase in fuel costs and 62 percent rise in aircraft rental costs continued to erode profitability. But a more stable exchange rate led to just 6 million reais in currency-related losses on the company’s debt, down from 476 million reais a year earlier.

A weaker currency still hurt Gol’s operations as Brazil’s real fell nearly 8 percent in the year through September, driving up the cost of dollar-denominated expenses such as leasing, fuel and maintenance.

Earnings before interest, taxes, depreciation, amortization and aircraft leasing fell 23 percent to 96 million reais.

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