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Soaring Oil Prices Impact Brazilian Airline Companies

05/10/2018 - 11h46

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DANIELLE BRANT
FROM SÃO PAULO
NICOLA PAMPLONA
FROM RIO

Recent high oil prices may be reason for celebration by oil companies and related firms whose revenues are related to the price of the commodity but are a cause of major concern for airline companies, who suffer from the consequences of high prices for the fuel that they use which raises their operating costs.

The decision by the United States to leave the nuclear agreement with Iran caused the price of oil to rise 3% on Wednesday (the 9th), to US$ 77 a barrel.

This price increase was reflected in higher share prices for Petrobras and other oil companies in trading today. The class of shares in the state-owned company most highly traded today increased by 8.16% to R$ 24.78 (US$ 6.90). Shares with voting rights rose even more, to R$ 27.22 (US$ 7.58), an increase of 10.02%.

"It's natural for oil companies to benefit, because their revenues are directly related to the price of oil itself. Of course, companies who depend on petroleum or oil derivatives as inputs are negatively impacted", said Ronaldo Patah, an investment strategist for UBS Wealth Management.

This group includes airline companies, whose shares fell today: Azul lost 6.32% while Gol, who was also negatively affected by a 9.3% reduction in net profit during the first quarter to R$ 147.5 million (US$ 41.1 million), lost 9.85%.

"There are two negatives: a high dollar and a high oil price", declared Raphael Fiqueredo, Partner/Analyst at Eleven Financial.

Brazilian airline companies also have leasing contracting for airliners, which are affected by the US Dollar exchange rate.

Translated by LLOYD HARDER

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